Giving Cash is Better Than Giving Goods

A decade of data shows that giving cash to the poor is better than giving goods

Last week, I wrote about Universal Basic Income as a poverty-fighting strategy being considered by governments, charities, and economists all over the world. One of the key features of UBI is directly giving money to the poor people instead of giving them goods or services.

A new article in the Boston Globe (paywalled) points to a lot of data that’s been generated in the last 10 years supporting the conclusion that “giving people cash instead of food or other in-kind aid empowers recipients, is harder to steal, and pumps money into local economies.”

Here are some interesting excerpts from the article.

The use of cash payments by charities is increasing:

In the last three years, humanitarian organizations have doubled their cash and voucher programs, giving out $5.6 billion last year

and

[…] cash or vouchers now account for nearly 20 percent of the $29 billion given out in humanitarian aid each year […]

The beneficiaries often have to make difficult decisions, and giving them cash allows them to choose, which is better than someone else making that choice:

What became apparent is that the recipients would prioritize their needs and spend money in ways that set themselves up for the long term. In the Democratic Republic of Congo, [Sophie] Tholstrup [policy coordinator for Cash Learning Partnership] says, families might skip a meal in order to send a child to school. “It’s a terrible choice to have to be making, but families were able to choose, and it struck me that that’s where the decision-making power should be,” she says.

They use the cash sensibly, and it leads to measurable improvements in outcomes, compared to equivalent non-cash aid, according to a 2018 USAID study of cash giving in nutrition programs in Rwanda:

households that got cash instead of standard aid packages saved 60 percent more, consumed 32 percent more, and expanded productive assets like livestock by 76 percent more. Cash recipients' diets improved, and so did their children’s height, weight, and chances of survival.

Most people dislike the idea of giving cash because, “poor people will make poor financial decisions,” and “blow it on booze.” But now there is a lot of data supporting the opposite conclusion:

“Cash has been robustly evaluated over 200 times at this point,” says Michael Faye, co-founder and president of GiveDirectly.

Acknowledgements

Thanks to readers Shashikant Kore and Makarand Sahasrabudhe for sending me to this article.