People are considered to be living in poverty if their income and resources (material, cultural and social) are so inadequate as to preclude them from having a standard of living considered acceptable in the society in which they live. In general, poverty is defined financially, usually using two approaches: the absolute and the relative approach.
The poverty rate is based on an “absolute” poverty line: People are considered to be poor if they do not have the financial means to buy goods and services that are necessary for a socially integrated life. The poverty line used is based on guidelines from the Swiss Conference for Social Welfare (SKOS), which serve as a reference for assessing social assistance entitlements in Switzerland. A poverty rate defined in this way is suitable as a socio-political target value as financial support for poor people or households is directly translated into a measurable reduction of poverty.
The at-risk-of-poverty rate is based on a “relative” poverty line: People are considered to be at risk of poverty if their household income is considerably below the standard income level in the country concerned. Thus, poverty is seen as a form of inequality: whether a person is at risk of poverty depends not only on his or her own economic situation (or that of its household) but also on the standard of living in the country where she or he lives. As this indicator may be calculated everywhere in the same way, regardless of a country's own factors such as social legislation, it is appropriate for international comparisons.
Both concepts take into account the different sources of household income, but not potential assets (income poverty).
