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The Benefits of Cash During Baby’s First Years: A Look at New National Research and New State Policy

02/16/2022 – Cash assistance to families is having a moment. The expanded, monthly child tax credit has decreased poverty, but the jury is still out on whether Congress will pass another bill to continue it.

With this backdrop, we heard from two sets of researchers who have taken different approaches to studying the impacts of cash payments on young children and families. They are adding to the research base that shows relatively small infusions of cash to families during infancy can result in big effects later on.

Dr. Andrew Barr and Dr. Alex Smith shared the results of their research (forthcoming in the Quarterly Journal of Economics) on the long-term impacts of cash to families during infancy. A discontinuity of tax benefits in the 1990s – some low-income families received a tax benefit, while others didn’t, based solely on the birthdates of their babies – created a natural experiment. The researchers tracked the outcomes of the two groups into young adulthood and found that the babies whose families received the extra cash had higher 3-8th grade test scores, fewer suspensions in school, higher rates of high school graduation, and their earnings were slightly higher in their 20s and 30s than the cohort whose families did not receive the tax benefit.

“Our results indicate that a cash transfer during infancy can have really profound and long-lasting effects,” said Barr. “The transfer pays for itself. The additional taxes that will be collected when these children are older are larger than the cost of the initial transfer.”

Dr. Kim Noble and Dr. Katherine Magnuson discussed their work with the Baby’s First Years study, the first randomized controlled trial that seeks to determine if there is a causal link between income early in life and children’s cognitive, emotional, and brain development. New mothers recruited for the study in 2018 were randomly divided into two groups to receive either a substantial cash gift each month for four years, or a more token amount. The first round of results was just released in January and show more fast-paced brain activity in the infants in the high-cash group than in the infants in the low-cash group. And those results are just the beginning. Going forward, the researchers will learn more about children’s thinking and learning at four years old and tease out additional impacts of the cash gifts.

“We have a lot of data that is going to help us understand a broad set of impacts about how cash transfers can affect families, communities, and children’s development more broadly,” said Magnuson. “Our goal was to think about how our research could be used to inform a range of public investments… like tax credits, parental leave, and housing.”

Policy Implications

Nawal Traish from the Prenatal-to-3 Policy Impact Center shared some state, local, and international examples of cash transfer policies that are reducing poverty across the country (see Additional Resources, below).

“Right now, there’s a lot of momentum in cities and towns to experiment with guaranteed income programs,” Traish shared. “These pilots are being launched all over the country, so we’ll hopefully have even more results to share in the next couple of years.”

Crystal Charles and Kate Breslin of the Schuyler Center in New York state, an Alliance ally, shared their experience using research like this to advocate for and successfully pass the NY State Child Poverty Reduction Act. Bipartisan and supported nearly unanimously, the Act challenges New York state to reduce child poverty by 50% in 11 years with attention to racial equity, establishes a Council to develop a plan and measure and report on progress, and requires an evaluation of the effects on child poverty of the Governor’s budget proposal.

Expected benefits of the Act are to encourage legislators to make more holistic decisions on policies that impact child poverty while paying attention to racial equity, and to improve accountability by measuring progress over time and linking state budget decisions to child poverty. Charles shared that advocates achieved this win by rolling out a communications strategy that included everything from op-eds to legislative testimony; building a powerful coalition, a deep bench of experts, and concentric circles of engagement; and directly educating policymakers. An important piece was the big tent.

“We were able to gain partners from health, child welfare, and early childhood advocacy orgs, and we armed our partners with the data on child poverty and its effects and with talking points, and coordinated public speaking opportunities,” said Charles.

New York advocates’ top three poverty reduction policy goals for this year are to expand the state’s Child Tax Credit, take steps towards universal child care access, and secure three-year continuous Medicaid coverage for mothers and babies.

Alliance allies across the country are using research like what we learned about today to inform their policy recommendations to state legislatures and build strong coalitions to advocate for those policies. With more research on cash transfers on the way, this moment could become a movement.