Can cash transfers boost child development?

We’ve talked before about how poverty negatively impacts both early child development and brain development. Young children are shaped by the stimulation they receive, as well as the words they hear and the significant relationships they have. However, these factors vary considerably from one socioeconomic level to another. To bolster child development, we have to bring down poverty. Can we use monthly cash transfers to accomplish this goal? 

In July 2021, the United States joined a large group of high-income countries in offering guaranteed income to families with children under age 17. Experts estimate the payments will cut child poverty nearly in half, an unprecedented feat.

What we know about the U.S. Child Tax Credit

1. Parents’ annual income and the age of their children determine whether families are eligible for this monthly payment and how much they will receive. The sum of the monthly installments paid out to each qualifying family from July through December 2021 ranged from $2000 to $3600.
   
   
2. Families who paid taxes in 2020 did not have to do anything to receive this credit. The monthly amount is deposited directly into their bank account.
   
   
3. The payments are tied to the national pandemic response program, so they are only guaranteed for one year.
   
   
4. Of the 74 million children under age 18 in the United States, almost 9 of every 10 are part of families that qualify for these monthly payments. 
   
   
5. The payments from the U.S. Department of the Treasury are a landmark social policy initiative for the U.S. and are fueling debate about whether to make the allowances a permanent part of the country’s social protection system.

All of this may sound familiar to readers in Latin America and the Caribbean because these countries have been making cash transfers for decades. In that region, however, most payments are conditional, which means families have to meet monthly requirements like bringing their kids to school or to periodic well checks in order to receive the money. The transfers in the U.S. have no conditions attached.

Key lessons on Cash Transfers that we have learned so far in Latin America and the Caribbean

1. Conditionalities are important in some contexts. For example, in Honduras we found that a condition related to well checks for children under age five favored child development. 
2. The region is also now considering new conditionalities to improve parenting practices of young children . Jamaica’s PATH conditional cash transfer program has led the way globally on this type of conditionalities.
3. Argentina’s Universal Child Allowance is a policy instituted in 2010 to expand the existing family allowance system, which was previously limited to children of workers enrolled in social security. The policy now encompasses families with heads of household who are unemployed or are low-income informal workers. This initiative was a step towards universalizing the social protection system. The new system features shared responsibility for the health and education of children and adolescents who receive the allowance.

The U.S. government now faces challenges like how to get payments to millions of families that are hard to reach or not part of the banking system. This difficulty could hamper its aim of countering poverty. The initiative’s detractors will be on the lookout for flaws in delivery, examples of waste, or signs that the money blunts some parents’ motivation to work.

Does your country have this type of allowance? Do you think payments, whether conditional or not, could eliminate poverty? We want to hear from you in the comments section below. 

The Inter-American Development Bank works to improve lives in Latin America and the Caribbean. Our vision for 2025 is to sustainably drive growth and opportunities for all. See this video for more information.