Poor parents who receive unconditional cash allowances—a monthly or weekly sum of cash per child—tend to spend the money on their children.
This conclusion was found in a working paper published on Monday by professors Lauren Jones, Kevin Milligan, and Mark Stabile of University of Toronto and University of British Columbia. After analyzing twelve years worth of data from Canadian expenditure surveys, they found that for every extra dollar granted to low-income families in the form of child benefits by the government, there was an increase in family spending on things such as rent, groceries, and education. Moreover, these same families actually reduced their spending on tobacco and alcohol (six and seven cents less per dollar of increased benefit), which the authors posited was due to reduced financial stress.
While the paper has not yet been peer-reviewed, it is in line with previous findings about cash allowances. An analysis by sociologist Jane Waldfogel examining the spending habits of British parents after their child benefit amount was increased showed that low-income families prioritized expenditures on goods for their children, such as clothes, books, and toys. When it came to alcohol and tobacco, it was actually high-income parents who were more likely to spend their extra income on such goods.
Unconditional cash allowances give cash to parents with no strings attached and are intended to help families with the costs of childrearing. The policy is a common benefit found in nearly every industrialized country, however, it has gained little traction here in the United States. Instead, the discussion tends to trend the other way—just this month, legislators in Missouri and Kansas pushed to ban the use of food stamps on steak and seafood and the use of Temporary Assistance for Needy Families (TANF) cash at movie theaters and pools.
Too often, Americans ascribe income and wealth as a metric for measuring people’s moral decision-making abilities and this, in turn, informs our country’s policies. It’s a line we’ve heard many times—the poor are lazy and should be shamed into making better choices. Instead of giving out cash in a way that the poor can spend it on what they need, we curtail benefits based on what we think they need and wouldn’t otherwise choose for themselves.
It’s true that the poor face constraints on their abilities to make informed decisions, such as lower levels of education or limited experience, and can benefit from assistance. As my TCF colleague Stefanie DeLuca explains, the Baltimore Mobility Project, which provides families with housing vouchers, also assigns counselors to help them during and after the moving process. These counselors encourage families to choose high-opportunity neighborhoods with better schools and safer streets.
But laws that require drug testing of welfare recipients or that restrict the amount of TANF cash that can be taken out of ATMs are a different beast altogether. Such policies assume that without these constraints, poor people would spend their benefits irresponsibly. However, as mentioned above, we have evidence from cash benefit policies in other countries to show that this is not the case. And at home, economist Greg Duncan and others have conducted studies in the United States, which reveal that unconditional cash boosts to parents lead to better outcomes for their children. Yet in many instances, such as the cases in Missouri and Kansas, lawmakers even restrict responsible purchases such as seafood, which is healthy, and recreational activities, which can help alleviate family stress.
This train of thought also explains why we refuse to give cash benefits to the poor without tacking on certain employment conditions, such as in TANF (which requires recipients to participate in work activities) and the Earned Income Tax Credit (which only applies to those with an earned income). While these policies are important and encouraging employment is a good goal, it shouldn’t be our only one. As my colleague Mike Cassidy reveals, about a quarter of Americans who work full time don’t earn enough to keep a family of four above the poverty line. Two parents can even work thirty-five hours a week each and still struggle to provide for their children. A cash allowance would help close this income gap.
Universal cash allowances reduce material hardship for millions of children in our peer countries. We shouldn’t punish our children and families for a superstition as to how the poor spend or should spend their government benefits.