October 14, 2020

Making the Case for Cash Transfers to Families with Children

By Lisa Gennetian

Co-authors: Eldar Shafir, Princeton University; J. Lawrence Aber, New York University; Jacobus DeHoop, UNICEF

Child poverty is the one of the world’s biggest existing challenges and, far too often, it is coupled with uncertain, sometimes conflict-ridden circumstances leaving millions of children dispersed, disenfranchised and stateless. The most timely and perhaps devastating example of this comes with the reality we face today amidst the COVID-19 pandemic. An additional 150 million children have been plunged into poverty since the pandemic hit earlier this year – a 15% increase – meaning approximately 1.2 billion children now live in economic deprivation, according to an analysis by UNICEF and Save the Children.

Research shows that poverty, violence, neglect and unsafe environments have long-term consequences that can handicap children later in their lives and that poverty during childhood is associated with many greater risks that compromise education and children’s future economic self-sufficiency.

We know, based on mounting research evidence, that children thrive when they have stable, nurturing environments where there’s routine, responsive parenting, proper care, and quality nutrition and education. What we do not quite fully understand well is what kinds of policy can help both reduce the negative effects of poverty and foster the circumstances for children to thrive.

My colleagues and I make the case that cash transfers to families with children is a promising possible solution. Cash transfers are a general term for a government policy, or a private initiative, that gives money to eligible people as a way of supporting their economic well-being. The act of transferring funds to recipients can be done through bank accounts, mobile phones or in person. Prior to COVID-19, more than 1 billion people were recipients of cash transfers.

The economic rationale behind cash transfers is twofold: 1) to address public or private market failures by providing income to meet consumption needs when jobs and formal earnings are insufficient or unstable and 2) to fill gaps when public or private infrastructure to support basic needs (e.g., health, housing, food) is insufficient or absent. Beyond the economic rationale, cash transfers also promote principles of human rights, dignity, and social equity. Some cash transfers are unconditional (i.e. have no strings attached, allowing recipients to use the money in any way they see fit). This type of cash transfer is sometimes criticized for fueling laziness and disincentivizing work, even though there is little evidence to support this contention. In fact, the majority of cash transfers available to people prior to COVID19 included provisions that required recipients be enrolled in school or employed.

In this work, we delve deeper than economic theory and ask what the combination of psychology with economic theory and child development can reveal about the promise of cash transfers for specifically addressing family financial distress and instability, and support children’s development.

The combined theories of economics, psychology and child development contribute to a new interdisciplinary perspective.  This perspective also points to ways that cash transfers can support the effectiveness of other investments and interventions for children by freeing up time and mental energy for caregivers and their children to participate. We back our argument by noting the promising evidence from general comprehensive reviews of cash transfers and then take a stab at summarizing a select set of case studies of cash transfers to families with children that used a randomized control study design for evaluation where relatively less is understood to date about impacts on children’s development.

Our claim is a bold one: the proposed behavioral insights informed interdisciplinary perspective gives us a lot of traction to think about cash transfers to families with children. Cash transfers to families with children are feasible and wise and conceptually grounded. A behavioral informed view can support smart, context based, design of cash transfers to families with children that can reap lots of returns. Such a policy is not a panacea for child poverty, but for sure can serve as an important companion and catalyst to the range of existing other strategies such as job development, and high quality and safe settings for children.

To learn more about Gennetian’s research on cash transfers, watch the below video overview, “Behavioral Insights and Cash Transfer to Families with Children” and a recent presentation from Gennetian during this October 14 webinar hosted by the Institute for Research on Policy, “Lessons From Cash Transfer And Basic Income Pilot Programs.”