Today’s Solutions: January 31, 2023

We’ve written about how direct pandemic payments were overwhelmingly used to pay for essential goods and services and helped lower poverty rates. New research from Washington State University (WSU) expands upon these findings with a study that finds that when low and middle-income parents receive no-strings-attached payments, they increase spending on their children.

To come to this conclusion, WSU sociologist Mariana Amorim analyzed the spending of recipients of Alaska Permanent Fund payments. These payments are the closest thing the US has to an official universal basic income program. Alaskan residents receive dividends funded by state oil revenues which vary based on income and family size.

Looking at these payments, Amorim found that a majority of low- and middle-income parents who received money made more education, clothing, recreation, and electronic purchases for their children. Spending habits were analyzed using 20 years of data from the Consumer Expenditure Surveys around the time payments went out to families.

Interestingly, the spending of high-income parents didn’t vary when they received the payments, indicating that for families who already have the money to afford clothing, food, and educational basics, these direct payments are less critical. Amorim also notes that Alaska’s program is not an ideal UBI model. Alaskans receive lump annual sums, but Amorim finds that smaller monthly payments are more effective as individuals are more likely to use the money for food, rent, and other essentials, rather than big ticket items, when it comes in spread-out payments.

This study further counters the idea that UBI leads families to reckless spending habits. Research continues to demonstrate that direct payments help families afford essentials and save for long-term goals like going back to school, starting a new career, or affording a downpayment on a home.

“The data suggests that lower-income parents are responsible using cash payments, so we don’t need to be so afraid to give poor people money that can help their families,” said Amorim.

Source study: Social ForcesSocioeconomic Disparities in Parental Spending after Universal Cash Transfers: The Case of the Alaska Dividend

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