Traditional views on poverty, at least in the United States, will argue that poor people are poor because they make bad decisions. New research on the subject shows that the opposite may be true. That is, being poor makes for bad decision-making.
On the heels of a trend in nonprofits giving money directly to the poor in developing nations, like GiveDirectly and Ben Affleck’s project in the Congo, this new research from a study in Morocco suggests that we can help poor people most by making them less poor.
In a study conducted in New Jersey, researchers found that relatively poor people, by global standards, did worse on cognitive function exams when confronted with the idea of an expensive car repair compared to other subjects confronting the idea of a cheaper car repair. Both groups of impoverished people under-performed when compared to wealthier subjects. Whether the studies account for differences in education based on socioeconomic status is still up for debate, but the fact remains that there was a difference in performance between both groups of poor people.
In Tamil Nadu, some thousands of miles away, another study found that people given an unconditional cash transfer experienced large observable gains in income as far as four years down the road. That a one-time transfer could influence the recipient’s future income to that extent may be linked to the mental relief that the cash cushion provides. GiveDirectly would likely agree, based on the results of their program in Kenya that makes no-strings-attached, direct investments in sub-Saharan individuals.
With data to back the benefit of giving direct financial aid to developing nations, the playing field for nonprofits focused on global poverty may be changing. That said, the concept of giving money directly to the poor is not new. In the mid-1990s the concept of conditional cash transfers took hold simultaneously in Mexico and Brazil. What was then thought of as a “nuts” idea quickly became popular worldwide.
Conditional cash transfers, or CCTs, are qualified transfers to persons based on whether they meet certain criteria. Public programs and private charities use them worldwide to incentivize the poor to take actions that would qualify them for programs that policymakers and organizers believe will help them rise out of poverty. In short, the conditions are there to “keep the kids in school,” as New York Times writer, Tina Rosenberg, suggests.
However, when compared, results from unconditional cash transfers are much more promising than CCTs. Though both kinds of transfers see increased incomes, recipients of unconditional transfers increase their incomes more. Not only that, the cost of setting and determining qualifications for individuals to be given CCTs are not necessary for unconditional transfers, making operations less costly.
In light of the research and data on unconditional transfers, CCTs may be on their way out. Seeing as these programs are usually quite large and run by national governments, the unconditional transfer innovation may allow these important social welfare programs greater efficiency and the ability to redirect funds from costs associated with operation to the people who really need them.
– Herman Watson
Sources: Slate, East Congo Initiative, Give Directly, New York Times, Stanford, Poverty Action
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