Concern over the reliability of conventional poverty studies has focused attention on the need to demonstrate that those identified as poor are actually experiencing hardship. This paper takes a step in this direction by examining poverty using a living standards approach derived from the literature on deprivation and social exclusion. Deprivation – defined as an enforced lack of socially perceived necessities – has emerged as a way of identifying who is missing out on what the community regards as the necessities (or essentials) of life. Social exclusion – which exists when individuals do not participate in key activities in society – has opened up new areas of inquiry relating to a lack of connectedness between individuals, the communities in which they live, and key economic and social processes. The findings indicate that many Australians face deprivation and exclusion in numerous aspects of their lives, and that those defined as poor in income terms are different from those who are deprived or excluded. The low overlap between the three indicators implies that they all have a role to play in documenting the extent of social disadvantage and helping to identify the factors that contribute to its various manifestations.

Controversy over the setting of poverty lines and its narrow focus on income has undermined the influence of poverty research on policy. The deprivation approach overcomes these limitations by identifying deprivation as an inability to afford items that receive majority support for being essential. This paper estimates the incidence of deprivation and compares the results with those produced using a conventional poverty framework. The results confirm overseas findings by showing that the groups most deprived differ from those with the highest poverty rates and that there is a low degree of overlap between income poverty and deprivation. Older people show up as faring better under the deprivation approach, while working‐age individuals and families fare worse and the relative position of the most highly disadvantaged groups are worse in terms of deprivation than in terms of poverty. Deprivation also provides a clearer differentiation between those who can and cannot afford specific necessities than a classification based on low income, and is also shown to vary systematically with several indicators of subjective well‐being. Estimates of consistent poverty that combine low income with deprivation are shown to differ from conventional (income‐based) poverty rates, and provide the basis for future poverty measures.

The limitations of income-based poverty lines are widely acknowledged, but Australia lags behind many other countries in implementing new measures of social disadvantage based on the deprivation approach. A new suite of questions included in wave 14 of the Household, Income and Labour Dynamics in Australia (HILDA) survey allows the deprivation approach to be applied. This article describes the advantages of the deprivation approach and shows that while the income and deprivation approaches can produce similar overall results, the circumstances of some subgroups vary greatly according to which measure is used. A measure based on deprivation alone and/or a combined measure would be an important complement to conventional income-based poverty rates.

Many studies have noted the low overlap between income poverty and material deprivation when the latter is derived using the consensual approach that builds on the work of Townsend. However, few have examined the contributing factors and even fewer have assessed the sensitivity of the overlap to different approaches and adjustments. This paper uses Australian data to examine the impact on the overlap of data adjustments and three substantive factors: short-run income fluctuations, housing costs and net wealth. The analysis shows that accounting for two of these factors leads to a marked increase in the overlap between poverty and deprivation.

Income-based studies of child poverty treat children and young people as effectively invisible and determine the poverty status of families or households on the basis of information that is provided by, and is primarily about, K E Y W O R D S child well-being, deprivation, disadvantaged groups, poverty, social exclusion