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They will not squander the cash

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Cash assistance programs help recipients invest in productive activities and can alleviate poverty. Photo by Nahrizul Adib Kadri on Unsplash

By: Dr. Romi Bhakti Hartarto

Cash assistance programs help recipients invest in productive activities and can alleviate poverty by easing liquidity constraints. Compared to other forms of aid, such as in-kind transfers, cash assistance has lower distribution costs and can be considered more efficient. In principle, cash assistance can improve household well-being by allowing recipients to spend money on items that best meet their needs.

Dr. Romi Bhakti Hartarto

Approximately 60 countries worldwide have implemented conditional cash assistance programs. The conditions attached to the assistance often relate to education and/or health components. Policymakers argue that linking cash assistance to investments in children’s resources will help poor households break free from intergenerational poverty and have a sustainable impact. The importance of prerequisites for school enrollment can be seen in Mexico’s Progresa program. For recipients receiving assistance with the condition of school attendance, the likelihood of their children attending school and advancing to the next level is higher. Experiments in Malawi also support the idea that conditions attached to cash assistance programs are cost-effective in reducing dropout rates and increasing school participation.

Most conditional cash assistance programs succeed in achieving their short-term goals explicitly. Therefore, the effectiveness of conditional cash assistance programs partly depends on whether the prerequisites are enforced. In a systematic review of the impact of conditional cash assistance programs, previous studies revealed that having clear prerequisites that are strictly monitored and enforced can increase the likelihood of school enrollment compared to similar programs without school prerequisites or with minimal supervision and monitoring.

Some critics argue that cash assistance programs have indirect impacts that are often overlooked in program effectiveness assessments, where recipients are feared to squander money, rendering the program futile. As recipients of cash assistance, poor households are often associated with biased preferences for the present. They tend to spend income on items that benefit them in the present and ignore future benefits. They may invest little and instead squander money, such as buying cigarettes, especially since the male head of the household usually has greater control over the household spending portfolio.

However, literature reviews focusing on the impact of conditional cash assistance on consumption patterns in developing countries show no impact or even a negative impact on cigarette and alcohol expenditures. Studies in the Philippines also support this, where there was no change in cigarette and alcohol consumption while Pantawid Pamilyang beneficiaries spent more on their children’s education. Similarly, in Peru, Juntos beneficiaries spent more on food than on cigarette consumption. These findings are attributed to the conditional cash assistance being directed to women as recipients, where they tend to consume less or no cigarettes or alcohol compared to men. This is due to the negative stigma associated with women smoking amid societal culture. Furthermore, concerns about husbands taking money from wives, recipients of assistance, to buy cigarettes have not been empirically proven.

Studies in Indonesia about the Family Hope Program found that spending on items considered as squandering money, such as cigarettes and restaurant dining, actually decreased among conditional cash assistance recipients compared to non-recipients. They allocated more of their assistance for their children’s education to help them meet the program prerequisites in order to continue receiving cash assistance. This applies especially to households in the bottom two quartiles. These findings signal that recipients of assistance understand the logic of the program and spend money from cash assistance on items that support program prerequisites, even though there are no explicit rules governing how the money should be spent.

Compliance with program prerequisites is undoubtedly tied to recipients’ awareness, enforcement of program prerequisites, and support from program facilitators.

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The author is a Postdoctoral Research Fellow at Ungku Aziz Centre for Development Studies, Universiti Malaya, and an Assistant Professor at the Department of Economics, Universitas Muhammadiyah Yogyakarta, Indonesia.

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