Are Ukrainians getting increasingly poorer amid war?

Since Ukraine's State Statistics Service suspended its research in 2022 due to martial law, the only source of data on poverty levels available is the Household Socio-Economic Survey. This study, commissioned by Ukraine's Ministry of Social Policy, was conducted by the Institute for Demography and Life Quality Problems of Ukraine's National Academy of Sciences and the Ukrainian Center for Social Reforms from December 2023 to February 2024.

Only two regions, Zakarpattia and Chernivtsi, maintained poverty rates at 2021 levels. These areas welcomed many relocated businesses and displaced Ukrainians after the full-scale invasion began. On the other hand, areas like Chernihiv, Sumy, and Volyn saw a sharp increase in poverty because of their closeness to the border, the outflow of population, and, especially in Chernihiv and Sumy, the ongoing hostilities. However, these regional comparisons are incomplete, as the data does not account for the Russian-occupied territories.

"We actually anticipated a worse scenario. Even in the middle scenario, we predicted poverty rates would double, but the situation has turned out closer to the optimistic scenario," says Liudmyla Cherenko.

For context, poverty tripled in Ukraine during the early years of the Russo-Ukrainian War (2014–2015). In 2022, despite the economic shock and widespread population displacement, the increase was more contained. While deep poverty did grow, the overall situation wasn't as dire as it could have been, says the expert.

Cherenko points out that economic conditions in 2023 and 2024 are similar, so the idea that Ukrainians are becoming much poorer in the third year of the war isn't entirely accurate.

The rise of deep poverty: What does it mean?

Deep poverty refers to living below the level of basic physiological survival: people even skimp on food, which affects their physical and mental well-being. By comparison, general poverty forces individuals to forgo socially acceptable standards, such as decent clothing, shoes, or social interactions.

Traditionally, deep poverty in Ukraine has been lower than in neighboring countries like Russia and Belarus. For instance, in 2021, only 1.3% of Ukrainians lived below the physiological survival threshold. However, this figure rose to 8.8% in 2023, says expert Liudmyla Chenenko.

This problem mainly affects older retirees living alone on minimum pensions and displaced people who are unable to find employment, which is directly linked to the consequences of the full-scale war.

Ukraine also experiences a labor market paradox. Despite shortages in certain professions, unemployment remains high. According to Cherenko, this is caused by several factors.

First, the job market hasn't fully bounced back since the start of the full-scale war — experts estimate it's recovered about two-thirds to three-quarters of its pre-war level. There are still fewer job openings compared to 2021, so some leave for work abroad. Finding a job in certain regions has also become more challenging due to the lack of new opportunities.

Second, there's a mismatch between the jobs available and the people looking for work. There's a shortage of specialists in specific fields, especially those requiring higher qualifications. Employers often have to offer higher salaries to attract workers.

"This situation reflects structural unemployment, which is common in many countries. Now, it is exacerbated by the war. We can fully analyze the labor market only once it stabilizes in peacetime," Cherenko explains.

Why did pensioners find themselves in deep poverty?

During wartime, the government has the right to suspend pension indexing. Although, in 2024, it made a few attempts to increase the pension, it applied only to specific categories of pensioners. So, while wages are gradually rising and adapting to new prices, pensions are not. There is also the growing trend of an aging population, and with fewer people of working age, there's no one to contribute to the budget to ensure enough funds for pensions.

Cherenko warns that this trend will likely worsen. Younger generations should avoid counting on pensions and prepare for extended working lives. 

"If there isn't enough money for today's pensioners, the future generations will face even greater difficulties because Ukraine lacks working-age youth," says the expert. "The scheme — work until retirement and then have a deserved rest — doesn't work anymore."

What other factors are driving poverty in Ukraine?

Mykhailo Kolisnyk, a professor at KSE Graduate Business School, academic director of SOE programs, and president of the CFO Club Ukraine, says Ukrainians feel a decline in their quality of life because of several economic factors. He points out that, over the past two years, wage compensations haven't kept pace with inflation, which has spiked, impacting the well-being of citizens.

Many employees accepted wage freezes to keep their jobs, while companies had to take these measures because they struggled with reduced demand for their products. Small businesses, which were especially affected by the economic crisis, had to shut down when bigger businesses had funds to increase salaries.

Meanwhile, certain groups in Ukraine, such as military families, have seen increased incomes, says Kolisnyk. "Obviously, these are hard-earned money, gained through blood and, in some cases, with lives lost. However, the financial situation of some military families has noticeably improved, which can be seen in their purchases of cars, real estate, and other indicators. However, this doesn't offset the overall trend of growing poverty," says the professor.

Professor Kolisnyk also warns about the "Matthew Effect," in which the rich get richer and the poor get poorer. The term was first introduced by the American sociologist Robert Merton, who coined the concept based on a quote from the Parable of the Talents in the Gospel of Matthew.

It's a phenomenon of uneven distribution of benefits, where one side, already endowed with resources, continues accumulating and growing them, while the other, initially limited, suffers even greater losses and has fewer chances of success. Mykhailo Kolisnyk says this points to the future division of society, where the middle class will disappear. This trend is becoming more pronounced in Ukraine.

You can also trace poverty levels through the GDP per capita indicator. According to the professor, Ukraine's GDP per capita in 2023, calculated at the current USD exchange rate, was $5,181, the lowest in Europe. Globally, the average is around $11,000–12,000.

"Although Ukraine's GDP was low even before the full-scale invasion, the situation has worsened since then," says the expert. "However, this figure has increased compared to pre-war levels — before 2022, Ukraine's GDP was around $3,200–3,600, but that's mainly because the population has decreased, with many people leaving the country."

He also mentions another issue. Because of martial law, Ukraine doesn't hold elections, so officials stay in office longer than expected. This creates more room for corruption, which hurts citizens, acting almost like an "unofficial tax." Of course, not holding elections due to the war is the right call, but the negative economic consequences are still there, according to Mykhailo Kolisnyk.

Nevertheless, the expert emphasizes that despite the challenges, Ukraine's National Bank has managed to keep the financial situation in check and control inflation effectively. Moreover, the Ukrainian one looks much better when comparing Ukraine's economy to Russia's. For instance, the key interest rate in Ukraine is 13.5%, while Russia's is over 20%. This means Russia is seeing much higher inflation.

Despite some positive trends, such as rising wages and economic stabilization in 2023–2024, addressing poverty in Ukraine needs a comprehensive approach. This includes government support programs, investments in the national economy, and improved social support systems. Here's what can be done at the state level:

• Improving the investment climate

According to Mykhailo Kolisnyk, Ukraine must improve its investment climate to combat poverty. The government can't achieve this through "investment nannies" — state-hired managers tasked with protecting investors from the state itself — but through equal rights, investment transparency, and protection for all investors.

Clear, transparent rules and a business-friendly environment will attract investments both from within Ukraine and abroad. However, Kolisnyk stresses that buying American dollars is not an investment in the state. Investing in local businesses, for example, directly benefits the economy.

• Supporting small and medium-sized businesses

The expert highlights that Ukraine urgently needs to reduce bureaucracy and eliminate corrupt practices, such as administrative bribes for permits or licenses, which hinder entrepreneurs. Otherwise, Ukrainians face a situation where more businesses close than new ones open.

• Boosting domestic consumption

The government should encourage people to buy more Ukrainian-made products.

"The government made some attempts, like the national cashback program, but the impact is barely noticeable compared to the scale of the economy," Professor Kolisnyk says. "We need to restart the economy because, right now, we're surviving on foreign aid."

• Reforming social support systems

In wartime, the government must prioritize caring for those living in extreme poverty. Addressing poverty across nearly one-third of the population is almost impossible with limited funding, but helping the 8.8% in dire need is achievable, says Liudmyla Cherenko.

She points out the pressing need to reform a social support system that remains stuck at pre-2022 levels because the scope of payouts changed. Targeted payments are based on official incomes and don't account for shadow economies. As a result, the most vulnerable often don't receive the support they need.

Many vulnerable people fail to access social protection services for various reasons, including a lack of awareness about available benefits and programs. Instead of waiting for these people to seek help on their own, social protection systems should take the initiative to find and assist them. Best global practices suggest adopting a proactive approach — identifying not only those in dire need who can no longer reintegrate into everyday life but also those at risk of facing difficulties to prevent problems before they arise.

On a personal level, experts advise Ukrainians to focus on maintaining long-term activity, improving work productivity, pursuing further education, and retraining to increase their income. The goal is to become less reliant on state pensions and independently build a more secure financial future.

• Building pension savings: start now

Oksana Zheliezko, a personal finance expert and host of the podcast Pay Yourself First, says Ukrainians need to self-save, especially given Ukraine's aging population and increasing life expectancy. Her key advice? Savings should work for you.

"Keeping cash 'under the mattress' isn't practical due to inflation. If your money isn't working for you, it loses value over time," says the personal finance expert. "Take the example of the ice cream cone: in 1997, it cost 95 kopiikas (coins), but now it's UAH 30. So, money that isn't invested gradually loses its purchasing power."

Before investing, Zhelezko advises building an emergency fund. You need enough to cover 6–9 months of living expenses without losing quality. Calculate this by multiplying your monthly costs by at least six. Once you've saved this cushion, you can consider investments.

• Beginner investing: where to start?

If you're new to investing, start by learning the basics. Zhelezko recommends:

1. Avoid high-risk offers. Promises of 100% or even 300% returns in a short time are likely scams. Reliable options offer moderate returns.
2. Start small and simple. For instance, military bonds offer better terms than deposits because they're tax-exempt.
3. Consider private pension funds for long-term savings. With a low entry threshold, even UAH 100 can get you started.

However, always:

1. Verify funds on the private pension administrator's official website.
2. Evaluate the fund's capital, 15-year returns, and investment structure.
3. Choose funds with transparent asset management policies.
4. Assess risks. When investing in a country at war, you need to be prepared for the challenges that come with it.

• Increasing income: work and passive revenue

The most effective approach in personal finance combines two strategies: increasing income and optimizing expenses (through rational spending and savings management). Together, these strategies yield the best results for financial well-being.

"To grow your capital, you can either create sources of passive income, which ties back to the topic of investing or work more. However, working more doesn't guarantee you'll save more," says Oksana Zheliezko.

To better manage your savings, the expert advises regularly analyzing your financial situation, such as on the first or last day of each month. Based on the analysis, your capital may:

1. Increase: This suggests effective financial management — you're covering your expenses and saving for the future.
2. Stay the same: All your income is spent on daily needs, leaving nothing for savings.
3. Decrease: This is a warning sign that your expenses exceed your income, which could lead to debt and financial difficulties.

• Budgeting basics

While budgeting may seem tedious, Zheliezko describes it as "a map to improve personal finances" and increase your financial well-being. She suggests using online banking tools, where you can create spending categories, Google Sheets, or finance apps. 

"Simply tracking your expenses isn't enough," says Oksana Zhelezko. "You need to take it a step further and analyze where most of your money goes, identify your top three biggest expenses, and ask yourself if they truly align with your values."

The expert also suggests remembering three key rules for improving your financial situation:

1. Pay yourself first. Save a portion of your income immediately — ideally 10%.
2. Make savings a habit. Consistency is key; don't skip more than one saving cycle, even if the amount is small.
3. Analyze your expenses and optimize them if necessary.

To safeguard your savings, Oksana Zheliezko also recommends the following:

1. Distribute funds across multiple banks. Keeping your money in at least two banks can prevent issues caused by technical problems or cyberattacks that might limit access to your finances.
2. Diversify your investments. Avoid putting all your savings into a single tool, like deposits or military bonds. A varied portfolio can reduce risks.
3. Convert funds or invest. The national currency may continue to depreciate. Consider converting some of your savings into stable currencies or investing in other assets to minimize losses.

"However, remember that buying dollars or another currency isn't investing — it's more about mitigating currency risks if your savings are in hryvnias instead of foreign currency. Investment, by definition, involves generating income. Simply converting money isn't the same as investing," Zheliezko says.

While Ukraine's economic situation remains challenging, there are some positive shifts. The key is to focus on creating conditions for stable economic growth, a goal that depends both on government policies and the proactive efforts of its citizens.

Author: Iryna Troian