The Giving-Free-Cash-To-The-Poor-Will-Make-Them-Lazy Myth

I would like to clarify one thing here since my previous-previous entry was about Universal Basic Income (UBI). Giving cash to the poor will not make them lazy, or use the money for leisure purposes. As of today, there is no single study is able to prove that giving free cash will discourage people from generating additional economic returns (fancy word for working).

Based from my experience in this subject, when people get free cash, they will do two things. First, they will buy food. Second, they reinvest on themselves such as buying fertilizer for their crop, start a new business, and make sure their children stay in school.

There are numerous of studies here. These are few examples:

Uganda, Kahn Et al, 2015. Cash Transfers to Increase Antenatal Care Utilization in Kisoro, Uganda: A Pilot Study. 

“Cash transfers have been used to incentivize participation in health services. We examined whether modest cash transfers for participation in antenatal care would increase antenatal care attendance and delivery in a health facility.”

Latin America, Ham, 2014. The Impact of Conditional Cash Transfers on Educational Inequality of Opportunity.

“The main results indicate that groups considered vulnerable gain more in terms of access to education and that these interventions help level the playing field. They do not eliminate inequality of opportunity but are certainly a useful complement to equity-enhancing policies.”

Kenya, Kilburn et al, 2016. Effects of a Large-Scale Unconditional Cash Transfer Program on Mental Health Outcomes of Young People in Kenya.

“This study provides evidence that poverty-targeted unconditional cash transfer programs, can improve the mental health of young people in low-income countries.”

Brazil, Glewwe & Lucia Kassouf, 2012. The impact of the Bolsa Escola/Familia conditional cash transfer program on enrollment, dropout rates and grade promotion in Brazil

We examine the impact of Brazil’s Bolsa Escola/Familia program on Brazilian children’s education outcomes. Bolsa provides cash payments to poor households if their children (ages 6 to 15) are enrolled in school. Using school census data to compare changes in enrollment, dropping out and grade promotion across schools that adopted Bolsa at different times, we estimate that the program has: increased enrollment by about 5.5% (6.5%) in grades 1–4 (grades 5–8); lowered dropout rates by 0.5%.

It is the same for Malaysia as well. According to a study made by Kamaruddin et al, 2013, half of the money given from BR1M (Malaysia’s cash transfer program) was spent on basic necessities such as food, transportation and clothing.

In nominal terms, if the person is given RM500, I would say around RM340 will be spent on these items. Also based on their findings, around RM55 is spent on education, investment, and starting a business, and only RM20 is spent on “recreation”.

HH Expenditure 2016

Source: Department of Statistics Malaysia

If we look this from a bigger context, their findings correlate with the latest Household Expenditure Survey released last year. As we can see from the graph, those in the B40 (RM3,000 and less) group spend around 30% of its whole expenditure on food. You could also see that as income group goes higher, the proportion of expenditure on food decreases, while “restaurants and hotels” goes up. One explanation is, as your income goes higher, you substitute food from home to buying food from restaurants instead.

So, the argument of giving cash to the poor will make them lazy so far hasn’t been proven (yet).