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What Happens When You Just Give Money To Poor People?

Filed by KOSU News in Business.
October 25, 2013

A couple months ago, we reported on an new charity called GiveDirectly that’s trying to help poor people in the developing world in an unusual way: By sending them money with no strings attached.

The idea behind this is simple. Poor people know what they need, and if you give them money they can buy it.

But to some veterans of the charity world, giving cash is worrisome. When we first reported on this we spoke with Carol Bellamy, who used to run UNICEF, and who said people might spend the money on things like alcohol or gambling.

To see whether this was actually happening, researchers did an actual experiment. They surveyed people in Kenya who received money from GiveDirectly, and a similar group of people who didn’t get money.

The results from the study are encouraging, says Johannes Haushofer, an economist at MIT’s Poverty Action Lab who was one of the study’s co-authors.

“We don’t see people spending money on alcohol and tobacco,” he says. “Instead we see them investing in their kids education, we see them investing in health care. They buy more and better food.”

People used the money to buy cows and start businesses. Their kids went hungry less often.

(Full disclosure: Haushofer’s co-author helped found Give Directly, but no longer works there. The study, which is described here, was done in partnership with Innovations for Poverty Action.)

I ran the results by Carol Bellamy, the former UNICEF director who had been skeptical about giving cash. “I was impressed,” she said. “The return on investment was more positive than I would have anticipated.”

There were two areas where the study did not find significant improvement. Even though households were spending more on health and education, it didn’t seem to be having much effect. People who got money were sick just as often as those who got less. And school attendance rates for their kids didn’t really change. Bellamy says those findings suggest that, while cash seems to help in the short run, it’s still unclear whether it helps in the long run.

Paul Niehaus, one of Give Directly’s founders, does think cash can have long-lasting effects. He points to a similar study in Uganda where the government gave people money and people’s incomes went up — and stayed up, even years later. People had used the money to start small businesses, like metal working or tailoring clothes.

Niehaus says for him, the most interesting results from the new research were the improvements in mental health. Getting money made people happier, less stressed out.

“There is this growing realization that being poor is really stressful, and that hat can make it hard to organize your life and plan and make good decisions,” Niehaus says. “If one of the things that giving people wealth is doing is enabling them to feel more sane and more in control of their life, that could ultimately be one of the more important things.” [Copyright 2013 NPR]

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