Research has shown that birth through age 3 is the period of a child’s most rapid and sensitive development, and studies have proven that when a family encounters financial hardship during a child’s early years, the experience can disrupt the child’s brain development and compromise the foundation of their learning, behavior and health. That’s problematic, but there’s evidence supporting the idea that an infusion of even a relatively small amount of cash can make a notable difference to families living in poverty and help alleviate these hardships, thus improving their early development and setting them up with better odds in life.
The solution seems straightforward. Give families with children living in poverty more money. Right?
According to Anna Thom, an economist and researcher for the Prenatal-to-3 Policy Impact Center (PN3), it’s not quite that simple. Based in Vanderbilt University’s Peabody College, PN3 comprises a team of researchers and nonpartisan policy experts who work directly with state leaders, providing data to help the policymakers make sense of complex topics.
To that end, Thom led PN3’s in-depth analysis of how direct monetary payments, known as cash transfers, impact certain conditions that affect young children’s cognitive, emotional and social development. Published in October 2024, the evidence review shows that these financial infusions positively impact three policy goals: increasing household resources, improving child development and improving parent and child health. Beyond reducing child poverty, the research also suggests that cash transfers can reduce racial disparities in these key areas.
But as far as prescriptions for exactly how to approach distributing those infusions of cash, there’s no clear guidance.
“It’s really complex,” Thom says. “We found clear evidence that cash transfers are effective, but how much (cash), the optimal frequency or whether transfers are most beneficial when they target specific groups — that’s less clear.
“What’s exciting is that the research is clear that these cash transfers are helpful,” she says, “and the big concerns that they might disincentivize employment or contribute to inflation were not substantiated in our evidence review.”
Cash transfer programs can take many forms, such as tax credits or direct payments to individuals, but uniformly, their goal is to prevent or mitigate poverty. The research is clear that money — or the lack thereof — influences the well-being and development of young children. According to the National Institutes of Health, a growing body of evidence indicates that chronic exposure to poverty affects physiological and neurobiological development and the stress of unremitting scarcity is likely “central to poverty-related gaps in academic achievement and the well-documented lifelong effects of poverty on physical and mental health.”
Types of Cash Transfers
Though the vocabulary of cash transfers is evolving, the center offers these definitions:
©Prenatal-to-3 Policy Impact Center, Vanderbilt University Peabody College of Education and Human DevelopmentMost of the world’s developed economies provide some form of child allowance — an unconditional cash transfer targeted to all individuals or families with children — the U.S. does not (other than the temporary modifications to the federal Child Tax Credit through the American Rescue Plan Act in 2021.)
A global study of approaches to addressing childhood poverty, published in the American Journal of Public Health in 2019, reported that analyses of data from the 36 countries comprising the Organization for Economic Cooperation and Development (OECD) at the time (today there are 38) found that child poverty and food insecurity is more prevalent in the U.S. than in the majority of OECD countries. The study suggested that employing some of the other developed countries’ effective solutions — including some version of a universal child allowance — could help alleviate U.S. childhood poverty and food insecurity.
“Broadly, we recommend increasing investments in families with children, particularly low-income families,” the report states.
Findings From the Evidence Review
PN3’s recent evidence review looked extensively at various programs that put money directly in the hands of families, from studies of unconditional cash transfer (UCT) programs in Illinois, Massachusetts and Texas, to existing dividend-based unconditional cash transfers, to child allowance pilot programs throughout the U.S. Two of the largest and most data-rich programs the researchers studied were the Alaska Permanent Fund Dividend and the Eastern Band of Cherokee Indians Payments, neither of which was intended to be an anti-poverty program but each of which have measurably reduced poverty among their constituents.
In 2021, in what amounted to the first and so far, only nationwide case study of the impact of cash transfers, the Biden administration temporarily expanded the federal child tax credit (CTC) through the American Rescue Plan Act. According to the U.S. Census Bureau, the expansion lifted 2.1 million children out of poverty. For Black and Latino children, official poverty measures shrank more compared to the decline in rates for white children. The temporary cash infusion also had notable benefits on mental health, again with a greater difference observed with Black families. An additional $100 per child per month reduced depression symptoms in all low-income parents, with Black parents seeing nearly twice the reduction in depression and anxiety symptoms as other subgroups.
One study found that the monthly cash difference of $313 per month led to some changes in infant brain activity, with infants whose mothers received $333 monthly showing higher “fast-brain” activity compared to babies of mothers receiving $20 monthly. The brain’s mid- and high-frequency bands are associated with cognitive skills, which indicates that cash transfers may improve development of these skills, though more research is needed to draw a direct link.
One of the most important takeaways from the center’s review, Thom says, is the power of policy to impact individual lives. Policies such as tax credits, cash transfers, paid family leave and Early Head Start programs illustrate the power of state policy decisions to affect not only an individual child’s life but ripple into communities and lift the wider economy, she says.
According to an analysis at Washington University in St. Louis, child poverty in the U.S. costs up to $1.03 trillion a year in loss of economic productivity, increased health and crime costs, homelessness and maltreatment. Cash transfer policies seem like a bargain in comparison by helping mitigate social challenges and reduce government spending in health and human services.
“The return on investment is so high,” Thom says. “Investing in young children actually strengthens our economy. We do all this spending later in life (on health and crime costs, etc.) but when we invest in this early childhood space from zero to 3, that sets children up for lifelong success in school, in life, with their health and so on.”
“Even if you don’t necessarily care about individual children, families and their potential or whether they’re thriving,” she adds, “there is a fiscal argument to be made. We’re going to pay one way or the other.”
Further Research
Thom says the center plans to continue studying the state child tax credits that are cropping up throughout the U.S. in the wake of the temporary expansion of the federal credit in 2021, which Congress failed to renew at the end of that year. The programs haven’t been implemented enough to provide sufficient data yet, and many of the states are not evaluating their programs with the rigor the PN3 center requires to make a firm conclusion about their effectiveness. Nonetheless, the programs are “super promising,” she says and the researchers are looking forward to diving into that data.
K.C. Compton
K.C. Compton worked as a reporter, editor and columnist for newspapers throughout the Rocky Mountain region for 20 years before moving to the Kansas City area as an editor for Mother Earth News. She has been in Seattle since 2016, enjoying life as a freelance and contract writer and editor.
