Give Cash a Chance

Tuesday, February 24, 2015

by Clio Chang, Policy Associate, The Century Foundation

Currently in the United States, 14.7 million children live in poverty, and 6.5 million of them live in extreme poverty. As far as statistics go, that’s a pretty bleak one.

This situation is confounding when you realize that the problem is not that we do not know what works—it is that we lack the political will to tackle the issue. This is why The Century Foundation’s Bernard L. Schwartz Rediscovering Government Initiative recently hosted a conference entitled Child Poverty Solutions That Can Work. One of the more promising solutions discussed was cash allowances—simply giving cash to parents.
The Case for Cash
The truth is, children are expensive. It is currently estimated to cost over a quarter of a million dollars to raise one child—and that’s not counting college.
Cash allowances could help with this enormous financial burden. The way the policy works is that cash is given to all families monthly or weekly, for each child they have. This allows parents to invest in their children in ways that work for their individual situation. For example, a child with chronic asthma who needs his or her room recarpeted is very different from a child whose parent needs gas money to drive him or her to the dentist. 
A common myth in this country is that poor families spend such cash allowances on drugs and alcohol. A study by Jane Waldfogel, sociologist at Columbia University, that followed the expenditure patterns of the increased universal cash allowance in Britain, showed just the opposite. Low-income families prioritized spending of their extra cash on goods for their children, such as books, clothes, and fresh fruit. High-income parents, on the other hand, were the ones who ended up spending more of their extra cash on drugs and alcohol.
Cash Works
While more targeted funding focused on child care, early education, and health care is important for poor children, the benefits of simply giving cash to parents should not be underestimated. Different forms of cash allowances for children have been implemented, tracked, and rigorously evaluated in countries around the world. Cash transfers have not only become one of the poverty-fighting policy of choice in less-industrialized countries in Latin America and Asia, but they also are basic benefits in most European countries. 
More than fifteen years ago, for example, the United Kingdom made a commitment to end child poverty. In doing so, they significantly increased their universal cash allowance paid out to the parents of every child. They also created a targeted tax credit that tilted benefits toward the lowest-income families. 
The result of the U.K. plan was that it reduced child poverty by an impressive 53 percent over ten years. In that same period, U.S. child poverty rose by 25 percent. 
Immediate poverty reduction is one of the main benefits of boosting income, but the benefits seem to be longer term. Greg Duncan, professor at University of California–Irvine and one of the top researchers in this field, has presented the positive effects that cash—and cash alone—has for a child’s educational achievement. Increased income is associated with better grades for younger children, and higher graduation rates for older ones. Furthermore, increasing early childhood income can lead to better outcomes later in life, such as increased adult work hours and earnings.
So What’s Next?
While we have evidence of the benefits of cash allowances, more policy-oriented research needs to be done to figure out the best model for our country. Advocacy for cash allowances in America has been few and far between, while Mexico and Brazil have had cash transfer programs since the early 2000s, and the U.K.’s program dates all the way back to 1945. With one of the highest child poverty rates in the industrialized world, the United States should be looking toward innovative policies that work for our children.
Cash allowances have been proven effective, and should be a part of any child poverty agenda. 
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