Debunking 5 myths about cash transfers

Many people (including us) grew up hearing that “you can’t just give money to poor people.” This misconception isn’t based on evidence, but rather anecdotes and harmful stereotypes.

Here are 5 common myths that have been debunked through the 300+ studies on the impact of giving directly.

Myth #1: People will waste the money on alcohol or tobacco. 
Truth: Dozens of studies show cash recipients don't increase spending on temptation goods.

30 studies across Latin America, Africa, and Asia1 found people spent less on goods like alcohol, tobacco, drugs, and gambling after receiving transfers — this is on top of the many other positive outcomes, including reduction in domestic violence,2 improved mental health,3 and increases in school enrollment.4

Myth #2: Giving people free money will discourage them from working. 
Truth: There is no evidence that receiving cash transfers decreases how much someone works.

An analysis of 7 randomized controlled trials of cash transfer programs found no systematic evidence that these programs discourage work.5 The only exceptions were reductions in child labor and elderly workers — a favorable outcome.6

Myth #3: Micro-loans or cash with conditions would be better than sending cash with no strings attached. 
Truth: Cash has much stronger evidence than micro-loans. Conditional cash often has high costs without enough benefits.

Despite microfinance’s popularity, 4 major reviews found that evidence of their impact is scarce and inconclusive.7 Many people in poverty also need to spend on investments that will not generate immediate income to pay back a loan, like education, medical treatment, and sanitation. 

Others support giving cash with conditions to incentivize certain “positive” behaviors. This requires costly monitoring, and there’s little research to suggest that the benefits outweigh the added costs. One conditional program estimated admin costs as high as 63% of all transfers made in the first 3 years8 — those funds could instead be used to reach more people. Unconditionality also preserves recipient dignity, empowering people to make their own decisions rather than pressuring them to make ones experts prefer.

Myth #4: Cash donations will be lost to corruption and fraud. 
Truth: Cash transfers skip most intermediaries and loss to fraud is negligible – we know because we track it.

By eliminating intermediaries between donors and people living in poverty, direct giving reduces the opportunity for fraud. Your donation isn’t passed through governments or contractors; it goes straight to a mobile money account controlled by a person in poverty.

However, there are still some cases of fraud, which GiveDirectly has a robust process for detecting, investigating, and resolving. In 2021, our Recipient Advocacy team uncovered that only 0.23% of funds delivered were lost to fraud.

Myth #5: Cash aid causes inflation. 
Truth: Cash can have a multiplier effect that boosts the local economy without causing inflation.

Starting in 2014, independent researchers studied how GiveDirectly transfers affect the local economy: 10,500 poor households across 653 randomized villages in rural Kenya received ~$1000. After 2.5 years of monthly surveys of businesses and households, researchers found that the cash transfers had a “multiplier” effect of 2.4x, meaning that every $1 of cash delivered generated $2.40 in additional spending or income for the surrounding economy. There was nearly no inflation in prices for goods and services.9

Want to multiply your impact? Share this post with a skeptic in your life.

If you’d like to learn more about direct giving, check out our blog for our most recent research.