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Cash aid to the poor isn't spent on booze. So why do charities think it is?

Chen Guangbiao and two of the guests at the lunch he hosted for approximately 200 homeless people, at the Boat House in Central Park, on June 25, 2014 in New York City.
Chen Guangbiao and two of the guests at the lunch he hosted for approximately 200 homeless people, at the Boat House in Central Park, on June 25, 2014 in New York City.
Andrew Burton

Beliefs that the poor will squander cash given to them — and thus that aid must take the form of less fungible goods like food or shelters — are disappointingly widespread. Worse still, it appears that even some people who work directly with vulnerable populations believe their clients can't be trusted with money.

This past week, the New York Rescue Mission refused to allow Chinese businessman, philanthropist, and general eccentric Chen Guangbiao to give $300 each to some 200 homeless men and women who Chen had gathered for a lunch. The Mission's rationale? The beneficiaries would blow the money on drugs and alcohol:

[Chen] met with officials from the New York City Rescue Mission and asked them to supply the homeless people as guests. They said they would participate in the event as long as he did not hand out any cash, said Craig Mayes, the group’s executive director. Mr. Mayes said he was concerned that some of the clients might use the cash to buy alcohol and drugs. In return, Mr. Chen agreed to donate $90,000 to the organization, and the two parties signed a contract.

The guests, however, did not discover that the money had been redirected to the Mission itself until the event itself, causing considerable consternation. Neither Chen nor the Mission comes out looking great here; for one thing, Chen's plan (announced through a full-page ad in the New York Times, naturally) reeks of a desire for personal publicity rather than a genuine interest in helping New York City's most vulnerable residents. But the Mission's actions are particularly shocking, not just because of the implicit mistrust it expressed toward the very people the organization is charged with helping, but because that mistrust doesn't have much evidence to support it.

Columbia's Chris Blattman, who has done lots of research on cash transfers in the developing world, has a great op-ed in the New York Times going through what we know about how recipients of cash transfers spend their money. A recent World Bank review of studies found little evidence that transfers increase spending on alcohol or tobacco, and Blattman's research has suggested that transfers lead to durable improvements in the economic lives of recipients. And that's true even in cases you might think would be exceptions — like, say, drug addicts:

A few years ago, I started working in Liberia’s urban slums. My colleagues and I sought out men who were homeless or made their living dealing drugs or stealing. Many abused alcohol and drugs. We tested different programs in a randomized trial of a thousand men. One thing we tried was giving out $200 in cash.

Almost no men wasted it. In the months after they got the cash, most dressed, ate and lived better. Unlike the Ugandans, however, whose new businesses kept growing, the Liberian men were back where they started a year later. Two hundred dollars was not enough to turn them into businessmen. But it brought them a better life for a while, which is the fundamental goal of any welfare program.

This evidence is most directly relevant to developing countries, of course, but Blattman runs through some evidence suggesting the same is true here. Additionally, Andrew Goodman-Bacon and Leslie McGranahan of the Chicago Fed studied the effects of the Earned Income Tax Credit on consumption patterns of poor American households, and the effects on purchases of alcohol and tobacco were tiny and statistically insignificant. Admittedly, the evidence base is much stronger for developing countries, but that's part of what makes the Mission's decision such a shame. If the cash transfers had gone through and participants' spending had been tracked, we would have known more about how transfers are spent in rich countries, and how much of them tends to get spent on "temptation goods" like alcohol and tobacco.

Still not convinced cash transfers are a good idea? Check out a new study out of India, which found UNICEF-funded cash transfers were "primarily spent on schooling, health, food and nutrition, as well as housing and construction." Or see this study from Mexico, which found that giving out cash worked just as well as giving out food, and was cheaper to administer too.