5 Debunked Common Myths About Unconditional Cash Transfers

Unconditional cash transfers (UCTs) are rapidly increasing as a radical method of ending poverty. Cash assistance has doubled in size since 2016 and now constitutes nearly 20% of the entire humanitarian aid sector. In opposition to tradition, advocates of UCTs believe that the way forward is to provide people in extreme poverty with cash and allow them to make their own spending decisions. This approach seems to attract skepticism. However, countless cash transfer programs have shown criticisms to be misplaced while revealing the incredible power UCTs have at transforming people’s lives. The following are myths about unconditional cash transfers.

5 Debunked Common Myths about Unconditional Cash Transfers

  1. “People will waste money on drugs and alcohol”: A stereotypically held view is that if people receive unconditional cash transfers, they will waste the funds on items such as drugs, tobacco, alcohol, etc. rather than making investments toward their future.  Contrarily, countless studies have shown the opposite to be true. A 2017 study from The World Bank and Stanford University found that people don’t spend the transfers on alcohol, tobacco and other such items. As a result, concerns regarding wasting the money were therefore “unfounded.”
  2. “People in poverty don’t know what they need”: Traditionally, governments and NGOs decide what form of humanitarian assistance a particular region requires, rather than letting the people themselves make the decision. For years, there has been an assumption in development that ‘the West knows best’ and that developing regions require intellectual guidance from more developed nations to progress. This approach underestimates the importance of resources and places knowledge as a determining factor of regional development levels. Furthermore, research has consistently shown that cash transfers allow those living in poverty to make effective individual choices that improve their lives. Spending choices routinely include increased investment in agriculture, health care and enrollment in education.
  3. “It is inefficient”: There is a belief that UCTs are simply inefficient. However, the available evidence suggests otherwise. Not only do the UCT recipients tend to spend their grants in a manner that effectively improves their lives, but they also do it in a way that is often far more cost-effective than existing aid programs. Just on its own, the World Bank spends nearly $1 billion dollars per year on aid programs. A 2015 study from The University of Chicago showed that skills training had a limited impact on poverty or stability in developing countries and was not cost-efficient. Conversely, cash transfers have proven to be a successful method of stimulating wealth and long-term earning potential with a more cost-effective result.
  4. “Giving people money will make them Lazy”: This is a common stereotype of welfare recipients. Again, evidence shows that the opposite is true. Studies have shown that cash transfers actually increase workers’ productivity. Moreover, unconditional cash transfers act as a kick-starter for many communities, stimulating them to invest more time and effort into achieving prosperity for themselves and their family.
  5. “It’s physically impossible to give away that much cash”: In the past, this may have been true. However, technological evolution now means that distributing large sums of money directly to individuals is not much of a challenge. GiveDirectly is an example of an NGO that uses electronic payment services such as M-Pesa and MTN that have unlocked the possibility of a mass-scale distribution of cash. GiveDirectly sends money to the recipients’ cell phones, allowing them to either convert this electronic balance into physical cash or use their cell phones to pay merchants directly. This gives people personal, secure access to life-changing financial aid.

Looking Ahead

In summary, the remarkable achievements of UCTs continue to defy expectations and change lives. Moreso, the world is beginning to see the merits of the cash movement, with recent research by the United States Agency for International Development (USAID) suggesting that up to 50% of all humanitarian assistance could now be effectively distributed as cash. Hence, unconditional cash transfers have the potential to revolutionize the development sector and nudge societies closer to minimizing or alleviating poverty.
Henry Jones
Photo: Flickr