Mythbusting study reveals that when poor people are given cash, they really do spend it well

Photo: Robert Ballantyne / Popjournalism, Dec. 23, 2016
A homeless person's belongings near a grate at the heart of Toronto's financial district Photo: Robert Ballantyne / Popjournalism, Dec. 23, 2016

There’s a pervasive myth that giving cash to the poor is a waste because they’ll just spend it on “cigarettes and alcohol.”

The opposite is true, according to a recent research paper.

David Evans of the World Bank and Anna Popova of Stanford University examined 19 recent studies that looked into cash transfers and “temptation goods.” They found that “concerns about the use of cash transfers for alcohol and tobacco are unfounded.”

Dan Kopf of Reuters (via Quartz) reports further that the study found that cash infusions changed “a poor household’s economic calculus”:

Before receiving the cash, any spending on education or health might have seemed futile, but afterwards, parents might decide that a serious investment in their children’s school was sensible. To make this happen, it might mean cutting back on booze and smoking.

Kopf also goes on to refer to “The Flypaper Effect” economic theory:

Behavioral economics research shows that when money is given for a specific purpose, people and organizations do tend to use it for that purpose, even when there is no one forcing them. In the case of cash transfers, households are generally told to use the money for family welfare.

When cash infusions are given to women, and when they are in charge of the household income, there is a higher probability of those funds being used for “food and children’s health.”

Myth officially busted! So what’s stopping you from donating to charity or the poor this holiday season?

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