If Poor People Need Money, Why Don’t We Just Give It To Them?

Money

Conventional wisdom tells us if we want to help poor people, providing non-monetary assistance such as food, housing, infrastructure and education trumps handing out money directly. After all, everyone’s heard the proverb, “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”

But what if that’s wrong? What if giving pure, unadulterated cash is the most simple, efficient, cost-effective way to
help the poor become, well, less poor?


That is the question posed by the NPR Planet Money team in one of the latest broadcasts of This American Life, a popular radio program in the USA.

Reporters flew to Kenya to see how a program that gives money to poor people in rural villages was working. The program is led by U.S.-based GiveDirectly. According to the NPR story, it’s the only charity with an exclusive mission to give money directly to poor households with no strings attached. Yep, they can spend it on whatever they want.

GiveDirectly’s founders—four economists with degrees from Harvard—created the charity as grad students after trying to figure out the best way to donate their spare dollars to get the greatest outcome for people in the developing world. They discovered this wasn’t easy to determine. Why? Because of the lack of scientific evidence among charities in measuring actual impact, founder Michael Faye told NPR.

Now, through his GiveDirectly charity, Faye sends money to the poorest households in select Kenyan villages—who live on an average of $0.65 a day.  The money is sent to villagers via SMS to their cellphones.  And unlike micro-loans, it never has to be paid back. Give poor people money and they won’t be poor, right?

But, as the story notes, it’s easy to see why charities have long steered clear of this kind of philanthropy. If recipients can spend it on whatever they wish perhaps they’ll use it on drugs, alcohol, sex workers or weapons. And since the people receiving the funds only get a set amount, how can their new found wealth be sustainable? Once it’s gone, it’s gone.

So what are they spending it on?

The GiveDirectly website states the recipients use the funds for a number of things including, “buying food, investing in their homes, paying school fees, buying livestock, buying land, and buying clothing.” To see for themselves though, Planet Money reporters flew to Kenya to follow up with some of the people who were given money. One of them, a 25 year old man who—like most if not all of the recipients—lived in a mud house with a grass roof, received $1000 USD in two payments, about what a typical family in the village spends in a year. He bought a motorcycle with the cash, which he uses as taxi to make a steady income, and a metal roof.

Most recipients report spending $200-300 of their money buying a metal roof, something they say saves them a lot of money over time because they don’t have to keep buying grass for their thatch roofs and the metal ones don’t leak all over their belongings when it rains. Some bought a cow with the money so they can drink and sell its milk, one bought a mattress, another bought a mill to grind corn for people. Others started their own businesses.

Not exactly the horror story some have imagined when considering how poor people would use unearned cash, right?

Of course some people may fritter away their money on alcohol or make other unwise choices. But GiveDirectly maintains it has “not found evidence that transfers were spent on temptation goods.”

And even if some of the money gets spent poorly, is giving directly still worth it for the people who do make smart decisions when it comes to using it?

GiveDirectly thinks so. And it’s committed to compiling data through ongoing research into the impact of their work.

The idea that poor people may in fact know exactly how best to spend money to improve their future isn’t a new one: Books have promoted it, articles have discussed it, and although the GiveDirectly model is a first among charities, governments in developing countries have been giving out money to its poorest people to help bring them out of poverty for years. It’s called a cash transfer scheme and countries including Brazil, South Africa and Mexico are administering it in various forms with promising results—and have the empirical data to back it up.

But unlike GiveDirectly’s unrestricted, no-questions-asked model, some government-run anti-poverty programs slap on a couple conditions. Recipients may have to send their children to school, get vaccinated or have regular medical checkups if they want the money.

South Africa, on the other hand, got rid of  the few stipulations it had after discovering they were stymieing the impact on those who needed it the most. A 2012 assessment of the program states:

“The purpose of these conditions was to encourage parents to take part in activities that would improve their families’ standard of living and to ensure the safety of their children. However, these conditions had created barriers to receipt for many poor households. Not all caregivers were able to access the development programmes or could afford the costs associated with getting their children immunised…

…The aim of support grants is to target children most in need and these conditions prevented the poorest and most vulnerable children from accessing the grant. The elimination of these conditions increased the take-up rate, especially in these poorest areas.”

Still, there is clear evidence that programs with conditions, namely Brazil’s Bolsa Familia, significantly improve the health, nutrition and education of recipients, and also helps combat inequality.

So if it’s true that simply handing out cash to the world’s poorest people works, should we stop all other types of development aid?

Of course not. And no one is suggesting we should.

Sure, the GiveDirectly model appears to be working. And with low overhead costs, relatively cheap implementation and a presumably easy way to track actual outcomes, putting money straight into the hands of the poor should certainly be considered a reasonable option in the development aid toolkit.

But there’s no one-size-fits-all approach to addressing global poverty. As reporter David Kestenbaum puts it in his This American Life piece, “Even if it works in rural Kenya, it may not work so well in Asia or in urban areas. It won’t magically fix all the other things that keep people poor.”

And in a statement to GoodWorks, Oxfam Australia states:

Oxfam believes in some instances cash transfers can provide short term solutions for people living in poverty. However building strong, healthy societies where the need for external assistance is minimised, means holding national governments to account to ensure they provide essential services (health, education and water) to their people.

“While they can help with short-term consumption and investment, cash transfers are only part of the solution to the kinds of systemic problems that underpin poverty and inequality,” an Oxfam spokeswoman continues.

“For example, in the Horn of Africa food crisis, Oxfam carried out direct cash transfers, but also had to work to get market traders to re-establish supply chains in the worst-hit areas, or there would have been nothing for people to spend the transferred money on.”

It’s too early to tell whether the direct giving model will catch on and grow to anywhere near the size of conventional development aid.  But even if it fails on that level, perhaps it will spur a useful conversation about the importance of data collection to track how effectively charitable gifts are spent.

Ultimately, the direct giving model is premised upon the idea that the best person to decide how charitable money should be spent is the villagers themselves.