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A cash withdrawal at an ATM in Macclesfield, England A cash withdrawal at an ATM in Macclesfield, England (Photo by Lynne Cameron for Press Association via AP Images).

How to Maximize the Impact of Cash Transfers, During and After COVID-19

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With a third of the global population on lockdown amid the novel coronavirus pandemic, which has killed nearly 40,000 people as of March 31, governments are rightfully thinking about how to make it easier for their citizens to stay home and reduce activities that are likely to further spread the disease. The restrictions on movement, while important for public health reasons, mean that millions of workers are losing jobs and income necessary to cover their basic needs—including the housing that allows them to stay at home to begin with—not to mention investments in their future. Those who toil in the informal sector across the developing world, workers on renewable contracts and people who work in the “gig economy” are particularly vulnerable. COVID-19 also threatens to exacerbate already dire conditions for low-income communities, as well as in humanitarian settings.

At least 84 countries are now implementing income-boosting measures to assist those whose livelihoods have been hit by the coronavirus pandemic, including 50 new cash transfer initiatives that have been introduced in countries ranging from Ecuador and Italy to Iran and Jordan. Hong Kong and Singapore are rolling out one-time universal transfers, while other governments, including in Brazil, China and Indonesia, are planning additional payments as part of existing social assistance programs. The U.S. government last week approved a $2.2 trillion rescue package that includes plans to send checks directly to individuals; India has announced a similar package worth $22.5 billion.

In addition to being widely used to cushion the economic damage from sudden shocks like this pandemic, cash transfers have long been an effective tool for poverty reduction. For decades, studies have consistently found that cash transfers improve development outcomes around the world, including in health, education, employment and overall well-being. Even this tried-and-true tool, however, requires thoughtfully designed and well-implemented programs to be successful.

In an emergency situation like the current one, cash transfers offer three important forms of relief: a rapid and cost-effective way to provide basic needs like food and shelter; a means to recover and rebuild after the crisis; and protection from future shocks. Cash transfers accomplish all of this while giving individuals the autonomy to manage their own expenses and stimulating local economies. The money allows those who are losing their income to shelter in place, thus avoiding mass migrations like the one happening in India, where millions of people, unable to maintain the cost of staying in cities after losing their jobs, are returning home to the countryside, potentially increasing the risk of the virus’s transmission. Helping workers stay in place means that they will also be ready to restart the economy and resume work immediately after the crisis, avoiding a labor shortage in the future.

Their benefits are clear, but so far, financing for cash transfers in response to COVID-19 is limited. So while cash transfers will be a crucial piece in the puzzle of economic recovery, governments have an important responsibility to help recipients make good use of their money without constraining their spending choices. The first priority will be to get funds to citizens as quickly as possible, in a way that minimizes recipients’ need to leave their homes and come in contact with an administrator. Governments will also want individuals to make decisions on how to divide the money between immediate and long-term needs based on their own personal circumstances.

Governments’ job does not end with delivering a check; it extends to finding ways to help citizens put aside the background noise and focus on important decisions.

Recipients’ needs from this cash will boil down to two big buckets: staying afloat for the near term by covering expenses for basic needs, and maintaining opportunities for productivity once the crisis is over. The latter might include storing supplies, preserving relationships with customers, funding transportation back to their places of work and looking for new sources of income. This allocation of resources between present and future needs is challenging even in normal times, but is harder still under the current circumstances. Given the uncertainty over the coranavirus’s staying power and availability of potential remedies, no one knows how long social assistance will be necessary, so recipients cannot be sure how much they should spend today versus put aside for later. And in most countries, the amounts proposed for emergency social assistance programs only cover a fraction of what people will lose in revenue during the crisis. This makes the wise and premeditated usage of funds that much more critical.

Moreover, the very novelty of the situation, where many recipients may be getting cash from the government for the first time, and in unfamiliar forms—direct deposits or phone credit, for example—further complicates people’s ability to make this important but difficult tradeoff. Behavioral science tells us that times of anxiety and hardship lead to “cognitive scarcity”—an erosion of mental capacity that dents one’s ability to concentrate on tough decisions. All of this has important implications for how governments provide assistance. Their job does not end with the delivery of a check; it extends to finding ways to help citizens put aside the background noise—the impulse to hoard ever more toilet paper and hand sanitizer, for instance—and focus on important economic decisions.

Fortunately, behavioral science does not simply alert us to what the possible difficulties are; it is also a source of solutions to them. The nonprofit where we work, ideas42, has produced evidence from three countries so far, showing that small tweaks to the design of cash transfers can help people use their money in ways that are better aligned with their own objectives. Governments can use these lessons to help their citizens make the most of their cash through the following design elements.

Use existing mechanisms for speedy cash delivery. Cash is an important part of enabling people to stay home in order to keep the virus from spreading, as well as mitigating its economic impacts. To deliver aid to citizens as soon as possible, governments should avoid any administrative burdens that will increase the time it takes to get the cash, and use the technology and targeting mechanisms they already have in place for other social programs to access people quickly. For the U.S., this would mean ramping up existing unemployment insurance programs instead of waiting for tax refunds or developing new ways to reach and verify people. For low- and middle-income countries, this could mean expanding strategies already in place for getting cash to vulnerable populations, as Colombia has done by adding additional payments to existing welfare programs and moving up scheduled payments to victims of its decades-long internal conflict.

Similarly, many countries have cash-for-work programs that are usually concentrated in a particular time of year—to aid agricultural workers during the dry season, for instance. Authorities might already have lists of beneficiaries for these initiatives, as well as for sporadic programs to get assistance to particularly vulnerable sections of the population, like widows, orphans and the disabled. Activating and ramping up disbursements under these programs can help get money to more people faster.

Labeling and messaging can promote optimal spending decisions. Governments should frame and label cash transfers properly, especially for the many people receiving a direct cash payment from their government for the first time. People who receive a cash transfer before they are personally affected or see any adverse economic impact directly might underestimate the magnitude of the pandemic. As a result, they may perceive the transfer as a windfall and spend it accordingly. Studies from Kenya and Morocco have found that labeling unconditional cash transfers for their intended uses—to reduce economic constraints on school attendance, for example—produced similar outcomes as making them conditional, without the added monitoring costs.

Using lessons from behavioral science to design cash transfer programs should help ensure that governments’ resources are spent as effectively as possible.

Communicate clear rules of thumb to help people allocate cash. A statement like, “Use this cash to pay for the most urgent things that can’t be delayed, and negotiate with creditors whenever possible,” might sound obvious to some. But it is the type of simplified and useful guidance that households need right now. Workers who have had to move back to their places of origin could be reminded to set aside enough money to enable them to return to their places of work once it is safe to do so. Each rule of thumb will not necessarily be right for everyone, but it will prompt individuals to think in terms that may not have otherwise been at the forefront of their decision-making.

Use the timing and cadence of transfers to mitigate uncertainty and facilitate optimal use. Most existing cash transfer programs in developing countries pay their beneficiaries on a bimonthly schedule. However, given the extreme uncertainty around the coronavirus pandemic, governments may want to make a larger number of smaller but more frequent transfers, to ease the burden on people trying to figure out how best to allocate the cash they are receiving between immediate and future needs. Knowing that another payment is coming in two weeks instead of two months may help people manage the anxiety of having their lives upended.

Help recipients plan and budget better. Households around the world are suddenly rethinking their everyday spending and financial decisions, and many people are being forced to withdraw their savings to use over the coming weeks of uncertainty. But others still have income available to take care of their basic needs; they may even have more disposable income than usual, given the decline in variable costs associated with their regular routines, such as meals at restaurants and transportation.

For these groups who don’t have to use their government assistance to cover immediate needs, making plans for any extra cash is critical. But intention doesn’t always lead to action, so governments should give people opportunities to make concrete plans and outline steps for reaching specific financial goals. Such prompts can take a number of different forms, but they often lead to better follow-through on the part of the recipient, as we found from studies that we conducted in Madagascar, Kenya and Tanzania. This can also help ensure that people are well-positioned to return to work once the crisis has subsided by making sure that needs associated with working again, like transportation costs, are salient at the time people receive assistance. This minimizes further disruption to economic activity beyond the unavoidable.

The increased uptake of emergency cash transfer programs comes as many countries consider whether to implement a universal basic income program, and certainly the urgent need for emergency cash assistance in this crisis makes it clear that at least investing in the mechanism for some sort of universal income transfer would hold countries in good stead for future public health crises. Even the staunchest opponents of cash transfers cannot deny that they are an important part of the economic relief being extended around the world during this pandemic, and likely will be after it. The importance of cash transfers in the face of COVID-19 could bolster proponents of a universal basic income in the future.

For now, using lessons from behavioral science to design whatever temporary cash transfers governments implement during this crisis should help ensure that their resources are spent as effectively as possible. In addition to helping people get through the immediate disruption of the pandemic, those lessons will ensure that economies can get back up to speed swiftly once the public health crisis has been contained.

Saugato Datta and Josh Martin are managing directors and Jessica Jean-Francois and Meghann Perez are senior associates at ideas42, a nonprofit that uses insights from human behavior to help improve lives, build better systems, and drive social change.