As we approach the end of the year, we often like to make some suggestions about good giving opportunities, based on research of what has been effective in making an impact in the lives of the poor. While we have a page with giving suggestions, I wanted to write a little bit about a giving opportunity that has received some attention lately: giving cash.
Giving cash may be the simplest way to help the poor, but it has some very interesting implications. It may be a very old way to help someone, yet it has received a lot of attention lately, due to some more recent reasons. First, giving cash has typically been a high-overhead venture, as you need to pay people salaries to distribute money. With advances in cell-phone based payments, organizations like GiveDirectly are able to transfer money with extremely low overhead. Second, there has been significant, detailed, and careful research on how people respond to being given cash, with very positive evidence and robust results.
I believe that the success of giving cash should cause us to stop and think about how and why we give. While this has been touted as the result of economic research, the basic premise and motivation for giving cash is surprisingly simple. If we want to do for others what we want done to us, it behooves us to turn the tables, and think how we might want to be helped if we were in need. If you were in severe poverty, and someone had $500 to help you out, how would you like them to help you? I think most of us would agree that we would probably choose cash as our first option. This would give us the most freedom in using the money for exactly what we need. We might use some to buy food and some to pay for school fees for our kids. If we needed shots or medicine, we could use some money for that. And maybe we could save some of it. Generally speaking, if someone has money and really wants to help us with our most pressing needs, most recipients would naturally say that they have a better knowledge of what they really need than the donor, and the freedom of cash would be the best way to help.
If we think about this from the perspective of a recipient, this seems quite obvious, yet as donors we rarely choose this option. Why is this? Why would we almost all choose cash as recipients, yet choose completely differently when giving? This seems like a strange contradiction. I think there are several good and bad reasons for this discrepancy.
First, we may often have a natural reaction that this will create dependencies. However, the great success of cash transfer programs should force us to challenge this reaction. In fact, dependency itself is not negative, it is actually positive. If we look at any successful organization, society, or group, you will find that people are heavily dependent on each other. However, there are harmful side effects that are sometimes (mis)labeled as “dependency”, like perverse incentives, displacement, lack of accountability, and market crowding which definitely should be carefully considered and avoided. But simply “avoiding dependency” without a more nuanced consideration of how the poor respond to donations and incentives can easily lead to the wrong response.
Second, probably the worst reason that we might avoid giving cash, is that it is not that exciting. Videos of wells with fresh water, children racing to school, and smiling medical recipients is certainly more engaging than someone who has received a cash transfer and used it for 10 different parts of their budget that were lacking.
The next reason one might avoid cash is that we claim to know what recipients need more than the recipients themselves. This generally suggests a fairly arrogant and paternalistic attitude. Again, turning the tables, if you were a recipient, you may well be grateful for whatever you receive, but the idea that someone thousands of miles away knows what you need better than yourself, may feel a little demeaning.
However, this isn’t always a bad reason. While it may be difficult to avoid the paternalism accusation, it is possible to do enough research to find opportunities to help, that may actually be better than what that someone might choose for themselves. In fact, we probably have personal experience with making bad financial decisions, where outside objectivity might have helped. And sometimes we even constrain our own immediate financial freedom, with tools like retirement funds, for the sake of our future self. But, we must approach this motivation very carefully. It is a very high bar to really claim you know what other people need better than they do.
Finally, probably the most legitimate and substantial reason to give to something other than cash is the social reason. Playing the table-turning game again, let’s remember that there isn’t just one person in poverty when we give. Imagine for instance if instead of being personally given $500, a donor said that they were going to give $5,000 to 10 of your neighbors. Now how would we like to see the money spent? This could clearly lead to very different preferences. Obviously many things, like food and clothing, might be very appealing for yourself, but it doesn’t do you much good when your neighbor spends the money that way. On the other hand, there many things that your neighbors or community might purchase that would really benefit you. Spending money to prevent infectious disease and building infrastructure like well/water or schools are the types of community improvements that might not be your own first priority of your own money, but would really be helpful if the money is being distributed or shared with others as well. And, in fact, efforts based on the collective needs of a community, fighting infectious disease, providing clean water, and improving education are some the most effective and helpful types of programs we can invest in.
I personally prefer other giving opportunities over giving cash, and I have mentioned a few considerations of this type of giving, but there are definitely some very compelling reasons to donate with cash. It is extremely low overhead, the poor can directly receive nearly the full value of your donation with hardly any administrative expense. It is a very “safe” and well-established mechanism as well. And finally, if you believe that offering the gift of freedom, personal-responsibility, and opportunity is the greatest of gifts, it is hard to beat the freedom and opportunity that cash in the hands of the poor will give them.