Exploring the concept of giving cash to help people out of poverty, the podcast discusses the positive impacts of receiving a large sum of money in Kenya, the cost-effectiveness of replacing grass roofs with metal roofs, and the concept of buying cows as a form of investment. It also delves into the effectiveness of giving cash without conditions, the potential of universal basic income, and the study on monthly vs lump sum payments in a UBI experiment in Kenya.
Giving cash directly to people in poverty can have a positive impact, allowing individuals to make effective use of the funds according to their own needs.
Providing a lump sum of money rather than monthly payments shows better results, enabling recipients to start businesses, increase incomes, and experience lower rates of depression.
Deep dives
Giving money directly to people in poverty
The traditional approach of funding specific programs to support people in poverty has been replaced by the idea of giving money directly to individuals. This approach is based on the belief that people know their own situations best and can decide how to use the money effectively. A major study conducted by Give Directly in rural Kenya gave households a lump sum of $1,000, resulting in significant improvements in their lives. Some examples of how the money was used include buying a motorcycle for transportation, investing in a mill to grind corn and sell soap, purchasing a metal roof to replace leaky grass roofs, and buying a cow as a type of bank. Overall, the study showed that giving cash directly to people in poverty can have a positive impact.
Monthly payments vs. lump sum
The study also explored the effectiveness of monthly payments versus a lump sum. Monthly payments of about $22 were compared to a lump sum of $500. While both approaches had their benefits, the villages that received a lump sum showed better results. Participants in the lump sum group started more businesses, had higher incomes, and experienced lower incidences of depression. However, it was observed that some monthly payment recipients formed savings groups, known as merry-go-rounds, to pool their monthly amounts and create larger lump sums. This indicated that the lump sum approach was preferred by participants, as it allowed them to tackle bigger projects and investments.
Long-term impact of cash transfer programs
The study also highlighted the difference between short-term and long-term cash transfer programs. Participants in the long-term group, who knew they would receive monthly payments for 12 years, exhibited similar results to those in the lump sum group. This suggests that having the assurance of long-term payments motivates individuals to invest in their futures. Additionally, it raises the question of whether the positive effects of cash transfer programs persist even after the payments end. Ongoing data collection will provide further insights into the long-term impact and sustainability of such programs.
There's this fundamental question in economics that has proven really hard to answer: What's a good way to help people out of poverty? The old-school way was to fund programs that would support very particular things, like buying cows for a village, giving people business training, or building schools.
But over the past few decades, there has been a new idea: Could you help people who don't have money by ... just giving them money? We covered this question in a segment of This American Life that originally ran in 2013. Economists who studied the question found that giving people cash had positive effects on recipients' economic and psychological well-being. Maybe they bought a cow that could earn them money each week. Maybe they could replace their grass roofs with metal roofs that didn't need fixing every so often.
The success of just giving people in poverty cash has spawned a whole set of new questions that economists are now trying to answer. Like, if we do just give money, what's the best way to do that? Do you just give it all at once? Or do you dole it out over time? And it turns out... a huge new study on giving cash was just released and it's got a lot of answers. Help support Planet Money and get bonus episodes by subscribing to Planet Money+ in Apple Podcasts or at plus.npr.org/planetmoney.