Giving away money as foreign aid to people in extreme poverty has always seemed like a bad idea. Uneducated, they’ll probably waste it on alcohol and cigarettes. But does this really happen?
Nope. Studies have found again and again that giving money to those in poverty does not increase spending on alcohol and cigarettes. Instead, spending increases on food, household items and money-making investments such as livestock.
Good impact on health
Health-wise, giving away cash is also good. According GiveDirectly, a charity that gives money to poor families in Africa with no-strings-attached, it has led to large reductions in HIV infection rates in Malawi as well as big drops in low birth weights in Uruguay. On top of this, people receiving these transfers have reported better psychological wellbeing and female empowerment when women received the grants.
Long-term is iffy
The longer-term impacts of these programs are more iffy. In a two-year follow-up of a no-strings-attached transfer program in Malawi, the World Bank found that drops in HIV infections, teen marriages and improvements in psychological wellbeing and nutrition had vanished.
Salary increases not impressive
But it doesn’t end here. A study from Uganda showed that three years after a $382 cash transfer, each transfer-dollar only made an extra $1.03 of income. Meanwhile, other projects by KickStart and Proximity Designs providing irrigation equipment made over $10 per transfer-dollar in the same time frame.
Education alone not the answer
Although giving cash to families provided their kids go to school increases average levels of education, if the economy can’t supply jobs, people’s living standards may not improve. According to a study on Oportunidades, a cash transfer program in Mexico, policies creating “investment, innovation and job creation” should come alongside cash transfers. This way living standards have more chance to improve in the long-term too.
To conclude, giving money to the poor for free can boost their wellbeing, health and levels of education. But it’s no silver bullet. To reduce poverty long-term, these transfers should be supported by policies making sure there are enough jobs and public facilities like healthcare, to sustain a healthier, better educated population.