Cash: A poverty solution worth trying

As I’ve been writing lately, child poverty is a moral crisis in the United States. One in five children live below the poverty line today—a hardship that devastates their development and inflicts untold suffering.

This national plight—and in particular, our abysmal tolerance for child poverty relative to other countries—has gained some attention lately thanks to the prominence Sen. Bernie Sanders has given the issue in his presidential campaign. But how exactly can we best help children living in poverty? It’s worth exploring recent experiments importing successful poverty relief programs from abroad, and thinking about how we can best adapt them to meet the needs of children in the United States.

Between 2007 and 2010, New York City undertook a bold policy experiment to put more cash in the hands of low-income families. The pilot program, spearheaded by Mayor Bloomberg and funded by a consortium of philanthropic organizations, offered 4,800 poor families cash payments for certain beneficial activities. For instance, families could receive $200 for an annual doctor’s visit, or $150 per month for maintaining a full-time job. Students could earn $25 to $50 per month for good school attendance, and $600 for passing a high school Regents exam.

The experiment was a conditional cash transfer (“CCT”)—a policy that transfers cash benefits to low-income families upon their meeting set conditions, which has been implemented with tremendous success in Latin American countries like Mexico. New York’s program—known as “Opportunity NYC Family Rewards”—was the first of its kind in the United States or any developed nation.

Family Rewards had mixed results. All told, the program transferred an average of $8,700 to families during the three-year period. It reduced poverty, cut down hunger, and boosted family savings. But the program fell short of expectations in other metrics. Most notably, the program failed to increase educational outcomes for elementary or middle school outcomes—a key policy goal for the Bloomberg administration.

Some speculate that the design of Family Rewards was flawed from the start. Lawrence Aber, a New York University professor who participated in the implementation of Family Rewards, thought that the program’s conditions were too many and payments were too infrequent and too small. The program may have overwhelmed families with its ambition, trying to test too many incentives at once.

New York has since simplified the program and rolled out Family Rewards 2.0 on a smaller scale and with more targeted conditions in an attempt to improve upon the first pilot. For students, version 2.0 limits its rewards to high schoolers, providing cash benefits for attending 95 percent of scheduled school days in a month, taking an SAT or ACT exam, receiving good grades on a report card, and passing a Regents exam. This program has been implemented in both the Bronx and in Memphis, Tennessee. The results are still under evaluation, but early reports showed that they increased family incomes on average by more than $2,000 a year.

While the impact of the original Family Rewards program’s educational incentives so far appear disappointing, the program was successful at keeping families out of poverty by padding their incomes. This in itself helps promote academic achievement. We know that higher family income tends to improve students’ outcomes in school. In low-income families that receive higher EITC and CTC refunds, their children score higher on standardized tests, are more likely to graduate high school, and attend college in greater numbers.

This is because poverty impairs the ability of children to succeed in school. Material deprivation interferes with cognitive processes, clouds students with toxic stress, and reshapes their brain functioning. Providing enough income to reduce poverty and reverse these harmful processes thereby has the effect of making it easier for students to achieve in school.

So what’s needed for low-income children likely is not an incentive structure to succeed in school or a set of rewards to enhance the value of academic growth. Rather, what’s needed is basic household income security to provide the foundation of resources necessary to facilitate learning and development — something like a child allowance. Such a policy would provide families with a basic payment to cover the essentials of raising children and setting them on a path to success from the earliest years of life.

But it may still be worthwhile to consider coupling the support of a child allowance with the nudging instinct of Family Rewards. One could imagine an enterprising city, school district, or even a well-funded and ambitious charter school trying out an initiative that (1) provides each family with a monthly “scholar success stipend” for each of their children, and (2) conditions receipt of a full payment on children meeting certain basic expectations in school.

For instance, a school could offer each family $200 per child each month as a stipend meant to help with the cost of school supplies, clothes, food, and any other resource the family’s children need to succeed in school. But if a student missed too many school days, or failed to meet behavioral standards, or didn’t complete homework assignments, her family’s payment could be docked.

This structure has a few things going for it. When families receive a periodic and stable child allowance, they can better plan and incorporate this benefit into their household budget and incorporate this payment into spending and saving decisions. It’s much harder to do so with an incentive-based cash transfer program that pays out irregularly upon taking certain prescribed benchmark actions.

Moreover, we know that most people tend to be driven by significant loss aversion. That is, they fear loss of existing income more than they value the opportunity to gain additional income of the same amount. This means that for some families, the prospect of a $25 loss for failing to attend school regularly might be more powerful than a $25 reward for good attendance.

We also know that when a benefit is earmarked for children, parents do in fact tend to spend it on their children. Sociologist Jane Waldfogel studied Britain’s war on child poverty, and found that low-income families receiving child benefits increased spending on goods like children’s clothing, books, and toys, and decreased spending on alcohol and tobacco. The evidence thus refutes the boogeyman myth that poor families can’t be trusted to spend cash benefits appropriately.

Children are better off when they live in homes with enough income to meet basic needs. Decent economic security saves children from a whole range of detrimental long-lasting disadvantages, and sets them on the road to success. One way or another, curbing child poverty is an investment we desperately need to make, and it’s worth experimenting with how we can deliver this investment to families in the most effective way possible.

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