Fighting Poverty By Giving Poor People Money

There’s more to life than just this, but I’ve come to think that directly transfering cash money to people in need is the most underrated tool around for fighting poverty. So I was incredibly excited to read Dana Goldstein’s profile of GiveDirectly last week and this morning I sent them some money for Christmas.

They take advantage of the fact that Kenya has a widely used mobile phone-based payment and banking system to take money from those who want to give and deposit funds directly in the accounts of impoverished families. About ten percent of the money goes to overhead (electronic payments processing alone is three percent) and ninety percent of funds reach the recipients. Obviously there’s a risk that some of the money will be “wasted” on booze or tobacco but in practice that looks like much less wastage than the guaranteed waste involved in a high-overhead prescriptive charity. Dylan Matthews explained that one further advantage of the cash transfer approach is that “many households who receive such transfers save the money, which increases investment and growth in the community over the long run.”

A perhaps related point is that when you give a poor household stuff that helps them but in some ways may undercut local businesses involved in the production and distribution of stuff. Transferring purchasing power (i.e. money) to a high-poverty community not only helps the recipient, but creates economic opportunities for others to obtain that money by providing useful goods and services.