TEST YOUR KNOWLEDGE
Unconditional cash transfers are payments provided to poor households in low- and middle-income countries without any strings. Research shows that unconditional cash transfers reduce poverty, increase food security, and build households’ assets. These payments also help to cultivate human capital and provide recipients with dignity and autonomy. Despite these findings, however, critics of unconditional cash transfers continue to cast doubt on their effectiveness with arguments based on anecdotal evidence. Critics claim that beneficiaries of unconditional cash transfers misspend the transfer money and that the programs themselves incentivize recipients to remain unemployed or to have more children in order to meet program requirements and keep receiving payments. But a recent review of large-scale government programs in seven African countries disproves these arguments. They are myths, and the evidence has debunked them.
Transfers encourage higher spending on alcohol and tobacco
“Free money encourages spending on bad habits like drinking and smoking.”
Myth Delivered
The evidence suggests that cash transfers do not increase alcohol and tobacco consumption and, in fact, may decrease the stress and poor mental health that are associated with poverty and often go hand-in-hand with smoking and drinking. In Lesotho, for instance, unconditional cash transfers resulted in lower spending on alcohol and tobacco while significantly increasing spending on food, suggesting that recipients may spend transfer money differently, and more intentionally, than other income. Transfers have demonstrated nutritional benefits, improving food security and dietary diversity.
MYTH 2
MYTHS
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REALITY CHECK
Critics say...
Transfers are fully spent rather than invested
Cash transfers are considered investments if they help maintain a household’s productive activities and improve children’s nutrition, learning capacity, and overall human capital. Evaluations showed that unconditional cash transfers had significant positive impacts on at least one indicator of agricultural production in each of the seven countries studied. In addition, unconditional cash transfers were found to have a significant positive impact on human capital investment, as cash increased school enrollment rates in Ghana, Kenya, Lesotho, Malawi, and Zambia.
MYTH 3
"Cash is a handout or charity."
"Poor families who receive financial support will work less and become lazy."
Cash creates dependency, reducing participation in productive work
Research does not support the hypothesis that cash transfers discourage work or have a net negative impact on labor supply. However, findings do suggest that cash affects household labor allocation—recipients sometimes switch their income-generating activities, allocating less time to hard manual labor working for others, while allocating more time to own farm production and small household businesses. Overall, beneficiaries reported having more flexibility and increased autonomy over their productive activities and time allocation.
MYTH 4
"People will have more children to obtain more benefits or maintain eligibility."
Transfers targeted to households with young children will increase fertility
There is no evidence that women had more children to re-qualify for programs in countries studied. On the contrary, the research found that the unconditional cash transfers increased birth spacing, particularly among young women. In Kenya, women between 12 and 24 years old who lived in households receiving cash transfers were 5 percentage points more likely to delay their first pregnancy. Further, the South African child support grant was found to decrease pregnancy among adolescent girls, and decrease childbearing and increase birth spacing among young women.
MYTH 5
"Cash transfers lead to price distortion and inflation."
Transfers will have negative community-level economic impacts
Evidence from across Africa south of the Sahara shows that unconditional cash transfer programs do not cause price inflation or distortions in the communities served. This is because of a combination of three factors: 1. Programs typically cover only about 20 percent of community households. 2. These are the poorest households, so the transfers collectively represent just a small injection to total community cash flows. 3. Enough market interconnectivity exists even in rural areas so as not to limit producers’ ability to meet increases in demand.
MYTH 6
"Programs are too costly to maintain over the medium-or longer-term."
Unconditional cash transfers at scale are not fiscally sustainable
Cash transfers are, in fact, relatively inexpensive—feasible at scale as a percentage of current spending and GDP, and fully within the cost considerations of most national government. Costing studies have found that unconditional cash transfers accounted for just 0.2 percent of GDP in Lesotho and 0.06 percent of GDP in Zambia. In the countries studied, unconditional cash transfers made up a small sliver of government spending when compared with the costs of other programs, such as school meals, farm input subsidies, and public works programs.
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