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What Happens When You Just Give Money To Poor People?

Oct 25, 2013
Originally published on October 25, 2013 9:34 am

For more of our reporting on this story, please see our work in The New York Times Magazine and on This American Life.

A couple of months ago, we reported on a 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 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 GiveDirectly 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 Bellamy, the former UNICEF director who had been skeptical about giving cash. "I was impressed," she says. "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 GiveDirectly'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 that 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."

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DAVID GREENE, HOST:

It's MORNING EDITION from NPR News. Good morning. I'm David Greene.

STEVE INSKEEP, HOST:

And I'm Steve Inskeep. A couple of months ago, NPR's Planet Money team reported on a new charity called Give Directly that was trying to help poor people in the developing world in an unusual way - just send them money. Bernard Omondi, who lives in a remote village in Western Kenya, remembers the day his money arrived. He got a text message on his phone.

BERNARD OMONDI: (Through translator) It was sent very early in the morning. I was still in my bed. I jumped up. My wife asked me, Bernard, what is it? Then I told her the guys of Give Direct have sent us the money. It's here.

INSKEEP: Mr. Omondi received $1,000, roughly what he might have made from a year of work. Now we have some research that examines how well all this is working. Here's NPR's David Kestenbaum.

DAVID KESTENBAUM, BYLINE: The idea behind giving money 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. She was concerned the money might be spent on the wrong things.

CAROL BELLAMY: Cigarettes, alcohol, weapons, gambling it away, all the kinds of things you don't want to have happen with money that just you just find in your pocket.

KESTENBAUM: To see if this was actually happening, researchers have now done an experiment. They surveyed people in Kenya who had gotten money. And they surveyed people who did not get money. Then they compared the two groups. Johannes Househoffer was one of the researchers. He's an economist at MIT's Poverty Action Lab. He said there were almost a thousand people in all. And the surveys were quite extensive.

JOHANNES HAUSHOFER: It's a fairly long interview that takes for a single household an average of about six hours.

KESTENBAUM: The results from all this work? He says they are encouraging. People used the money to buy cows and start businesses. Their kids went hungry less often.

HAUSHOFER: We don't see people spending the money on alcohol and tobacco and instead we see them investing in their kids' education, in health care. They buy more and better food. We see violence go down, psychological wellbeing go up quite significantly.

KESTENBAUM: Full disclosure: Househoffer's co-author helped found Give Directly, but no longer works there. I called up Carol Bellamy, the former UNICEF director who had been skeptical about giving cash and asked her what she thought of the new research.

BELLAMY: Well, I must say the results were quite positive.

KESTENBAUM: I mean, does it make you less skeptical than you were?

BELLAMY: It does. It does. I was impressed with - the return on investment was more positive than I would have anticipated.

KESTENBAUM: There were two areas where the study did not find significant improvement though. Even though households were spending more on health and education it did not seem to be having much effect. People who got money were still sick just as often. And school attendance rates for their kids didn't really change.

BELLAMY: Whether it really makes long term changes, I think that question is still unanswered.

KESTENBAUM: 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 businesses - metal working, or tailoring clothes. Niehaus says that for him, the most interesting part of the new research were the findings on mental health. Getting money just made people happy and less stressed out.

PAUL NIEHAUS: Being poor is really stressful and that can make it hard to sort of plan and make good decisions. And so, you know, if one of the things that giving people wealth is doing is enabling them to feel more sane and more organized and more in control of their life. That could ultimately be one of the most important things.

KESTENBAUM: Niehaus thinks cash works so well he says other charities should be doing their own experiments. They should prove, he says, that whatever they're spending money on is better than just giving that money to the people they're trying to help. David Kestenbaum, NPR News. Transcript provided by NPR, Copyright NPR.