New Study Finds Families Use Cash Benefits to Help Children

The COVID-19 pandemic prompted a massive national experiment in the more widespread of unrestricted cash benefits—a practice some have contended would result in families using the aid for non-essential goods and services. While researchers gather data to analyze how families spent their COVID aid, a newly published study by Washington State University sociologist Mariana Amorim finds that in Alaska, lower-income parents are more likely to spend money they receive through the Alaska Permanent Fund on their children. Amorim discussed the study recently with Spotlight; the transcript has been lightly edited for clarity and length.

Tell us a little bit about the study and how that came about.

This study looks at how parents with minor children spend the money that they receive through a universal cash transfer program, using the Alaska Permanent Fund dividend as a case study. The Alaska Permanent Fund dividend has been paid out to all Alaskans since 1982 and is the sharing of some of the state’s oil revenue. Regardless of income, race, gender or even age, people who have lived in Alaska for a full calendar year can receive the PFD.

There has been research in the past looking at how parents spend money from cash transfers, such as studies on stimulus payments, for example, or the Earned Income Tax Credit. But a lot of these previous studies just looked at low-income families or general expenses. The PFD is universal, so it provides a better opportunity to compare the child-related spending behaviors of parents across the income spectrum.

And when did you start doing this?

I started this paper about three years ago. I was actually doing a study of the EITC. My collaborators and I wanted to document how parents who received the EITC were spending the tax credit. The question about how those parents would compare to other parents with higher income came up a lot, and that’s how the project switched to the PFD.

But it turned out to be incredibly timely, right? There’s so much interest in this topic now given all the cash payments that were unexpectedly made during the pandemic.

Absolutely. When I started this project there was really no indication that we would have anything similar to a universal cash transfer in the U.S. any time soon, so the PFD program was very unique and very rare within the context of the U.S. At the time, it was interesting to think about what would happen to existing inequalities if we gave money to all parents. And here we are now with over 90% of parents receiving monthly payouts. So, yes, it turned out to be very timely.

Share some of your top-line findings with us.

I divided parents into low, middle, and high income, and then compared how Alaskan parents within each income group spend on children relative to similar parents that live in the continental U.S. First, I looked at monthly patterns and what I found was that parents in Alaska all increased their spending on clothes relative to other parents with the same income levels outside of Alaska. But then I also found that low and middle-income parents increased their spending on electronics and school around the time the PFD was paid. I would expect to see a bump in spending on electronics among the lower-income parents, in part because these are big expenses and parents just received the big cash transfer. The school spending was kind of surprising in that I saw this type of expense increase for lower and middle-income parents, but not for high-income parents. One of the reasons for that could be that lower and middle-income parents are changing the timing of their spending to take an advantage of the lump-sum payout, but they’re not actually increasing the total amount that they spend on children’s education.

For this reason, in addition to looking at monthly patterns, I also investigated how aggregate spending over the course of the whole year varies as the PFD increases or decreases. What I found corroborates the month-by-month models and shows more evidence that only low and middle-income parents are spending the PFD in ways that develop children’s human capital. The main takeaway here may be that lower-income and middle-income parents take more advantage of the cash benefit to increase their share of spending on things that matter.

Would this argue a little bit against making these kinds of benefits universal? That’s been a political selling point at times and has been part of the debate about the expanded Child Tax Credit.

The benefit of making payouts universal is that it creates more support for these types of policies. And it also reduces the administrative burden of checking eligibility and calculating how much people should receive.

Though my study does suggest that the PFD has a greater impact on middle and low-income families’ current or short-term expenses on children, it’s more difficult to identify how the PFD may benefit high-income families because these families may be investing the payouts or saving for future expenses such as college. The study really can’t shed light on these longer-term consequences of universal payouts and how they may shape future inequalities. I actually have another project that’s currently underway with a colleague at the University of Arizona, Jeffrey Sallaz, in which we are interviewing Alaska parents and collecting their narratives about how they spend the PFD payout and why. And at least at this point, preliminarily, we do see that higher-income parents are much more likely to save the money in college accounts or use it to pay down mortgages more than in short-term spending.

And you didn’t find, it sounds like, evidence for the idea held by some that if you give people cash, it’s going to be spent on things other than things they really need.

No, I did not find any evidence for that. If anything, I found evidence that lower-income parents are trying really hard.  They’re spending on basic needs, but they also manage to increase and prioritize the spending on their children. I also looked at alcohol and cigarettes and there is no evidence that this kind of spending is increasing significantly among any of the parents.

And the benefit in Alaska has always been universal, correct?

Yes.

And what is the delivery system? Do they do it through the tax code?

No, there is a separate application people file by March of every year and they receive the money as a direct deposit in October. The take-up rates are actually over 90% and have been pretty consistently over the last two decades. From what I hear from Alaskans, the application process is incredibly simple and quick.

On the general topic of cash benefits, do you think the experience of the pandemic, when cash benefits were used to a much greater extent, will bring a sea change in how we approach assistance payments going forward?

I think so, or maybe I hope so. I do think it signals a pretty big shift in how welfare policies have been done. I think the pandemic has shown the widespread need for assistance and how close to insecurity most families in the U.S. are. They’re not as safe financially as they thought that they were. Experiencing an economic shock or a change to your work conditions can really push people below the poverty level. So, I think that the pandemic created conditions for people to understand that the need for assistance is way more widespread than we previously thought. People have been way more receptive to this policy shift than I would have imagined when I started this project.

 

Giving money to parents with children regardless of their income is pretty common in developed countries, so the U.S. is a little behind on that. And I think the pandemic provided the opportunity for us make this shift and catch up with what’s being done elsewhere.