Why it is $2 a day

Why $2? | Where the money will go | Story | Organisations | FAQ | Team

The official Extreme Poverty Line from the World Bank is $1.25 US dollars. To make this an accurate representation of Australian dollars, there are two steps involved.

Step 1:

First off, we use Purchasing Power Parity figures to make the conversion to Australian dollars. This means that rather than converting to Australian dollars just using the current exchange rate, we actually look at how much Australians can buy with their dollars, compared to Americans.

Lucky for us, the World Bank has already done the maths, and tells us that in 2005 (when the World Bank calculated the Extreme Poverty Line figure of $1.25USD), for every $1USD spent, Australians needed to spend $1.39AUD to buy the equivalent things.

So in 2005, if you had $1.25USD to spend on food, in Australia you would’ve had $1.74AUD.

Step 2:

Now we’ve found this figure of $1.74AUD, but that was only accurate in 2005. To bring it into 2010 prices, we have to allow for inflation and changes in the value of goods – such as food. Again, the maths has been done for us – this time by the Australian Bureau of Statistics.

They tell us that since 2005, the price of goods has increased by 14.8%. This means that we need 14.8% more money to buy the same amount of food today than we did in 2005. Therefore we increase the 2005 figure of $1.74AUD by 14.8% to 1.9975 or $2.00 AUD.