Can cash payments reduce childhood poverty?

It’s estimated child poverty costs the U.S. economy about $1 trillion annually in lost productivity and spending on crime, health care, child welfare and homelessness. And with the national child poverty rate sitting at 16.3% as of 2022, policymakers are weighing ways to improve economic outcomes for American children to ensure they can thrive in school, in society and the workforce as adults.

But the impacts of childhood poverty are hard to escape. It can increase a youth’s engagement with law enforcement and the child welfare system, disrupting their lives and limiting their ability to pursue  higher education and maintain consistent employment, researchers say.

Childhood poverty also exacerbates racial and economic disparities, contributing to “a shrinking middle class in America,” where “the prospects for economic mobility for so many families seems to be diminished,” said Sarah Rosen Wartell, president of the Urban Institute, during a recent webinar on the impact of cash assistance for low-income families.

But initiatives designed to lift families out of poverty, like child tax credits and guaranteed income programs, are coming under siege as opponents question the fairness of using public funds for individual benefit. Critics say the programs are too expensive and benefit only a fraction of those in poverty. 

“It’s really hard to overcome the willful ignorance that is helping keep the rates of childhood poverty in this country as high as they are,” said Colorado U.S. Sen. Michael Bennet, referring to assumptions that poverty is a personal failing and that cash assistance incentivizes individuals to stop working in order to receive public benefits.

To effectively combat child poverty, panelists said officials must acknowledge the growing body of evidence that shows income supplements can have positive impacts on residents’ day to day lives. The extra money allows families to afford child care or save up for better housing.

At the federal level, though, lawmakers have not yet passed new child tax credit legislation that would  increase the maximum refundable amount from $1,600 to $1,800 for the 2023 tax year. Thereafter, it would rise to $1,900 in 2025 and $2,000 in 2026. The Tax Relief for American Families and Workers Act of 2024, passed earlier this year by the U.S. House, would also expand the child tax credit, allowing lower income families with multiple children qualify for a larger credit. Action is still pending in the Senate.

According to the Center on Budget and Policy Priorities, the refundable credit could help lift up to 400,000 children above the poverty line and reduce poverty among another 3 million children within its first year. It would help “put food on the table or pay for school clothes or diapers,” said CBPP president Sharon Parrott in a January statement.

In the absence of federal policy, communities are exploring ways to offer low-income families a safety net to prevent childhood poverty and reduce its impacts. A model that’s gaining traction is universal basic income, which gives program participants unconditional cash payments over a one- or two-year period. 

A 2022 study noted, for instance, that early childhood poverty is associated with differences in brain structure and function, making it a risk factor for lower school achievement, reduced earnings and poorer health. However, researchers found that monthly cash support to low-income mothers can positively impact the brain development of their infants. The findings suggest poverty interventions like supplemental cash payments can be linked to the development of higher cognitive skills in young children, said researcher Lisa A. Gennetian, a professor of early learning policy studies at Duke University’s Sanford School of Public Policy. 

From May 2018 to June 2019, researchers recruited 1,000 new mothers from New Orleans, Louisiana; Omaha, Nebraska; Twin Cities, Minnesota and New York City, to participate in an unconditional cash assistance program. For the six-year study, the low income participants (the mothers reported an average household income of a little more than $20,000) received monthly payments of either $333 or $20 through a debit card, Gennetian said. 

Data so far shows that about 80% of the cash turns into net income for those families receiving the higher monthly payments, she said, with participants spending the money on child-focused expenditures like books and toys. The second-year follow-up found that parents were buying more fresh produce for their toddlers. Other data found that parents had more time to spend on parent-child activities like reading, storytelling and playing. 

Plus, “we’re not seeing [parents] dropping out of the labor force, we’re not seeing large reductions in earnings or other types of sources of income,” Gennetian said. 

The study found that infants whose parents received payments of $333 had more high-frequency brain activity than infants whose parents received $20 payments. It is too early to determine if the increased brain activity is associated with improved economic outcomes, researchers wrote, but higher brain activity is generally associated with better thinking and learning skills, which can help children more effectively adapt to their environment. 

The evidence supporting cash assistance’s benefits on family outcomes is increasing “at an uncertain time when it comes to how our country protects the economic security of families with children,” said JooYeun Chang, program director for child well-being at the Doris Duke Foundation. For instance, some states are trying to ban local universal basic income programs, with opponents criticizing the use of public funds as personal payments to individuals. 

Ultimately, whether its expanded child tax credits, refunds or local income pilots, “many supporters of these programs have been citing a growing body of research on how cash can help to reduce not only child poverty, but improve outcomes in the short- and long-term for the families and their children, and how these programs help to reduce economic and racial disparities,” Wartell said.

“Against this backdrop of both excitement and … concern about some of these programs, it’s important to step back from the political debate and look at the evidence,” she said.