Apr 24, 2008

Explosive Growth in Conditional Cash Transfers

by Tim Ogden

Conditional cash transfer programs (CCT) are rapidly gaining popularity around the world. Pioneered in Brazil and Mexico, these are programs that require welfare recipients to “earn” their benefits by taking specific positive actions (send children to school, get vocational training, get preventative medical care) as a requirement of payments. CCT programs, at least in trial form, have now spread to dozens of countries—New York City has just launched a trial program called Opportunity NYC.

CCT programs are based on the fact that the day-to-day needs of the poor take precedent over longer-term efforts, which the result that poor people do not take actions that require short-term sacrifice if the benefits don’t pay off until far in the future. This dynamic has obvious impact on financial resources such as savings, but what about non-financial resources such as education? Just like a savings account, the payoff from education happens in the long-term, while the costs (both real costs such as school fees, and opportunity costs such as going to school instead of working) are felt now. Traditional welfare programs don’t do anything to address these challenges or provide incentives for recipients to invest in their own future. In theory, a CCT program provides both the safety-net the poor need, while also driving down future social service costs by encouraging recipients to take actions that will help them escape poverty in the future.

Of course, the reality is always more complicated than the theory. While there are studies which show that CCT programs have a positive effect, there’s still a lot we don’t know about how well they work, why they work, and how to structure programs for maximum benefit to both recipients and society. To help answer these questions, we spoke with Dr. Leigh Linden, an assistant professor of economics at Columbia University. Dr. Linden has recently concluded a study of a CCT program in Bogota, Colombia that pays parents to keep their kids in school.

Philanthropy Action Interview: Paying Parents to Keep Kids in School