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Finance & Innovation

Fight poverty by giving people cash

Flickr: Prefeitura de Olinda

There’s a pervasive myth (especially acute in the US) that poor people are poor because they’re lazy and irresponsible and rich people are rich because they’re hardworking and responsible.


Proponents of this view can gather corroborating examples, no doubt, but in the vast majority of cases this just isn’t true. Wealth is affected way more by circumstance than individual drive.

But it’s the type of myth that seems true on face value and therefore shapes public policies meant to address poverty.

Consequently, programs that just give poor people money have been lampooned as black holes that suck up funds with no promise of return.  

And because of this, most efforts in the past have focused on doing things for the poor (which isn’t always actually much) like building schools or hospitals or giving out clothes or water purification kits.

Programs providing services instead of cash have a mixed record but make people on the giving end feel more comfortable because at least there's a directed plan. When you go beyond prejudice and look at the data, however, you see that cash programs empower poor people.

Whether there are simple strings attached or no-strings attached, these efforts are proven to improve quality of life--which should be the goal of all humanitarian efforts.

Conditional Cash Transfers (CCTs) came first, but now Unconditional Cash Transfers (UCTs) are catching on.


Conditional Cash Transfers give families or individuals a regular or one-time stipend with the stipulation that some action has to be taken, for instance regularly going to the doctor or attending school.

Families are then incentivized to send their kids to school and remain healthy without having to fear that their income will be ravaged by taking time off work to do these activities.

The number of these programs around the world has jumped from 27 in 2008 to 52 in 2013, according to a report by The Economist.

A Brazilian program called “Bolsa Familia” began in 2003 and has helped more than 14 million families, or 50 million people. The poverty rate has fallen by 28 percent since then, at least in part because of the program and cost only .5 percent of the country’s GDP.

That’s cost-effective.

Uganda’s government gave out cash transfers of around $382 to thousands of people aged 18-35, only asking that expenses be described.

Four years later, the recipients were two-thirds more likely to be involved in a trade than non-recipients, their wages were 40 percent higher and they were 40 percent more likely to pay taxes.

Another example from Uganda: the government gave $10,000 to groups of 20 people who joined together, asking that groups submit a business proposal.

The results?

An average of a third of the money was spent on learning trades, with much of the rest spent on tools and stock. Average earnings rose by almost 50 percent in 4 years.

In an increasingly data-obsessed world, these numbers are hard to argue with.


What about just flat-out giving people money, showing up one day with a fat check and never following up?

That’s going to lead to booze and brothel runs, and even MORE poverty in the long-run, right?


Contrary to common perception, the provided funds are spent to fill gaps in household budgets, which fosters greater stability and leads to higher school enrollment and other benefits.

For instance, Vietnam gave handouts to 550 households and saw the community poverty rate fall by 20 percent in two years.

A program in Kenya called GiveDirectly does just that: crowdfunding gives money directly to poor families. The families who receive this money spend on education and healthcare and buy better food.

Long-term studies on UCTs are still preliminary since not many have been enacted. But the results so far are promising and encourage more robust efforts.

Of course, not all CCT or UCT programs will be effective and they have to tailored to the economic circumstances of each targeted area.

While UCTs are not at all the black holes they are portrayed as, CCTs are preferable, mainly because they are more palatable to the public.

When an organization can directly point to better school enrollment or vaccination rates or health outcomes, then they will face less resistance.

CCTs also help to guide the behavior of poor people toward prosperity, albeit from a distance.

When poor families are incentivized to send their children to school, they will better grasp the benefits of education and then may advocate for higher school standards.

In this and similar ways, poor people gain greater control over their lives and better understand their ability to shape public policy.