Aims Self‐efficacy has numerous benefits for active and healthy aging, including giving the people the ability to make positive changes to their living standards and lifestyles. The present study aims to determine whether falling into multidimensional poverty lowers self‐efficacy. Methods Longitudinal analysis of waves 7–11 (2007–2011) of the nationally representative Household, Income and Labor Dynamics in Australia survey using linear regression models. The analysis focused on the Australian population aged 65 years and older. The Freedom Poverty Measure was used to identify those in multidimensional poverty. Results Those who fell into multidimensional poverty for 3 or 4 years between 2007 and 2011 had their self‐efficacy scores decline by an average of 27 points (SD 21.2). Those who fell into poverty had significantly lower self‐efficacy scores in 2011 – up to 57% lower (−66.6%, −45.7% P < 0.0001) after being in multidimensional poverty for 3 or 4 years between 2007 and 2011 than those who were never in poverty. Conclusions Falling into multidimensional poverty lowers the self‐efficacy scores of older people. In order to improve the chances of older people making long‐term changes to improve their living standards, feelings of self‐efficacy should first be assessed and improved. Geriatr Gerontol Int 2017; 17: 308–314.