Just Give People Money. But How and When?

Jonathan Morduch and Rachel Schneider
Federal Reserve of St. Louis and Aspen Institute , Chapter in Ray Boshara and Ida Rademacher (eds.), The Future of Building Wealth: Brief Essays on the Best Ideas to Build Wealth—for Everyone. Federal Reserve Bank of St. Louis and Aspen Institute. 2021.

Just give people money. The idea is as simple as it is radical. At least it was radical until the coronavirus pandemic. With sluggish wages and household savings eroded by the pandemic, many struggling households simply need cash. Giving cash has turned out to be a powerful policy tool — its use is flexible, and households can spend it on their most pressing needs, whatever those are.

But not all money is the same. The amount matters, obviously, but the timing matters too. When you’re threatened with eviction, to take an extreme example, having the right amount of money at the right time can be the difference between maintaining housing and experiencing homelessness. The same amount of money received even a few weeks later might not help.

That probably seems obvious, but policies designed to support the finances of American families do not focus much on cash flows and the challenges they create in getting through the month or year. The focus has been instead on building long-term saving, income and wealth. To be successful in the long term, however, households need to be successful in the short term too. Short-term cash flows need more attention.

 

Wagner Faculty