Moving America Forward

Could Direct Payments Break the Cycle of Poverty?

July 10, 2014
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Could Direct Payments Break the Cycle of Poverty?
20 percent of children in the U.S. grow up in poverty. Kevork Djansezian/Getty Images
Some economists think giving monthly stipends to impoverished American kids is the most affordable form of assistance.

A sad fact: Poverty in America is increasing.

Currently, 20 percent of children in the U.S. grow up in poverty. That’s 16 million kids struggling to get by. And sadly, the percentage of poor kids in this country continues to grow.

What to do about this problem is a hotly debated question. Some advocate universal preschool, while others vote to improve access to affordable housing.

One economist has offered a somewhat radical proposal: Austin Nichols of The Urban Institute writes that we could reduce child poverty levels to 10 percent by providing each kid with a $400 monthly stipend. Added to that, Nichols believes that if one member of a poor family received employment, earning just $15,000 a year, the poverty rate would drop to 1 percent.

The idea isn’t as far-fetched as it sounds — many countries have such programs. Germany provides $250 per child each month to families, Japan gives $130 per child monthly, and the U.K. ponies up $140 for each child every month. Interestingly, most of these benefits go to all families with children, not just poor families.

Lane Anderson of Deseret News looked into whether such cash transfer programs work. The findings? A study by the World Bank and GiveDirectly.com suggests they do. For instance, when low-income Kenyans received a stipend, they reported gains in assets and general well-being and decreases in hunger.

The Urban Institute estimates that poverty-related expenses cost the U.S. $550 billion per year. Nichols’s proposal would cost just $76 billion annually, according to an article in TalkPoverty written by Zach McDade of the Urban Institute. In theory, this would save the U.S. hundreds of millions of dollars currently spent on child poverty.

McDade writes, “Dramatically reducing poverty is in fact the financially prudent thing to do, and helping 16 million American children out of poverty is the moral thing to do as well.”

In recent years we’ve seen many examples of how housing-first programs are saving states and cities money by reducing chronic homelessness. Could a cash-benefit program for poor kids have a similar effect?

MORE: Here’s Why We Should be Investing in Single Moms

 

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