Cash Transfers and Direct Giving

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Creating complex grantmaking strategies to address poverty can put a lot of weight on theories of change but never actually move the needle in real people’s lives. What if philanthropists just gave money directly to people experiencing economic hardship and let them spend it as they see fit? That’s the idea behind cash transfers and direct giving, a form of philanthropy that’s backed up by research and increasingly popular among major funders and everyday donors alike. Cash transfers are being embraced to reduce poverty in both developing nations and in pockets of the United States. This brief offers an overview of direct giving and highlights key considerations for donors interested in this strategy. 

Why Donors Support Direct Cash Transfers 

Major donors such as MacKenzie Scott and Jack Dorsey are among the notable names involved in direct giving. Even large foundations such as the George Kaiser Family Foundation and Schusterman Family Philanthropies give in this way — both of them have funded GiveDirectly, the leading organization in the direct-giving space. 

After building momentum over the past decade-plus, direct giving surged during the COVID-19 shutdown. The compelling need for this type of giving during the pandemic prompted many donors to try it for the first time or to scale up their direct giving. At the same time, persistent inequality has spurred growing interest in universal basic income, which is also often described as guaranteed income, and can take many different forms. Regardless, cash transfers still make up a small proportion of organized philanthropy. 

Here are few things to know about direct giving and cash transfers:

  • Recipients determine their own needs for resources. Direct giving might be the essence of trust-based, no-strings-attached giving. Donors transfer cash and recipients spend it as they see fit. Sometimes, recipients are able to save for the first time in their lives and make plans for a future different from what they thought was possible. 

  • It is efficient for aid organizations to provide. Whether it’s the urgency of a natural disaster or a pressing need to pay for healthcare or rent, sometimes people need funds immediately. Giving directly eliminates the often slow philanthropic process involving strategies, applications and disbursement schedules. It’s also a whole lot easier than providing food, housing and other necessities, or direct services like counseling, education and career training. Direct cash transfers are simply that: moving money, now.

  • It’s easy for donors. Direct giving is easy — at least, administratively speaking. You don’t need to spend time on applications, reports or grant management. You can simply give. With increasing usage of mobile devices in the farthest corners of the world, along with expert nonprofit organizations specializing in direct transfers and more accessible banking services, the ease of moving money has vastly increased the effectiveness of getting money directly to individuals in need. 

  • There is a growing body of research. Numerous studies show that direct giving is an effective intervention — at least in the short term — and that most impoverished people spend the money on necessities or to improve their lives. In addition, a growing network of organizations tracks the results of guaranteed income initiatives in various U.S. cities, including Mayors for a Guaranteed Income and the Economic Security Project.

  • Addresses the urgency of today’s poverty. While all kinds of programs can lift people out of poverty — from education to transforming economic systems — sometimes, people simply need cash to pay for housing, healthcare, food or other basics. What some people call the “cycle” of poverty might actually be just a series of small hurdles that are insurmountable without a little help. Direct cash transfers can help people obtain the resources they need to get on the other side of the barriers in their way and move forward. A good example of this is emergency cash assistance provided by The Change Reaction, a grantmaker and giving platform in Los Angeles. 

  • It can be paired with other strategies. You can do some direct giving without putting all of your philanthropic eggs in this basket. In fact, direct giving can be an effective complement to funding direct services and advocacy to create more equitable economies. For example, some housing organizations provide emergency assistance to forestall eviction while also advocating for policy changes to protect tenants. RIP Medical Debt buys up and forgives medical debt, but also seeks to reform the practices that lead to such debt in the first place. 

Key Considerations

There are many research studies pointing to the effectiveness of cash transfers to provide immediate assistance, but the evidence is lacking for long-term, large-scale change in individuals’ lives and/or broader changes in economic inequality.  

  • Screening issues. Some studies have indicated that direct giving programs confront challenges identifying appropriate recipients — either screening out the neediest or distributing benefits to people who aren’t experiencing poverty. The thornier issue is the challenge of reaching the neediest people, as those who are homeless or suffering mental illness might be the hardest to reach and consistently connect to electronic payments.

  • Lack of money isn’t always people’s most pressing problem. People experiencing mental illness and physical health issues need connections to healthcare that relatively small cash payments are unlikely to address, and people experiencing those acute needs may not be able to manage electronic payments.

  • Doesn’t address systemic issues. Some observers have asserted that direct cash payments are essentially modern “alms for poor” that leave in place such structural issues as discrimination, unresponsive government and unfair capitalist systems that cause poverty in the first place. Real, long-term change in structural inequality will require collective action to make change at the national or global level, and until that happens, direct cash transfers will always represent a Band-Aid approach.

  • Short-term effects on individuals. Studies have shown that direct cash transfers have a positive short-term effect on people’s lives across many dimensions, but that those positive effects have not been shown to have a major impact on their wellbeing over the long term. More research is needed in this area.

Taking Action

There are many ways to participate in direct giving and cash transfers. Here, we offer a few best practices and possibilities.  

  • Give to a direct-giving organization. You can support direct cash transfers without, well, giving directly. By donating to an established direct-giving organization that then redistributes your funds to people in need, you can be assured that professionals are doing the work to move funds effectively and efficiently to people who need it. Currently, though, there’s a fairly limited number of organizations that work in this space beyond GiveDirectly. RIP Medical Debt is the main organization helping people pay off their medical debts. One good direct assistance option for donors living in Southern California is The Change Reaction. 

  • Give to a community foundation. Some community foundations have rapid-relief funds to move money to impacted people during a disaster. You may be able to earmark a donation to your local community foundation’s emergency relief fund. The Wildfire Recovery Fund at the California Community Foundation makes grants to individuals affected by wildfires. Many Jewish federations, community charitable institutions that raise money from the community to support community members in need, have direct-giving programs. Inquire with your local community foundation or demographic-focused charitable institution, about whether they engage in direct giving, and how you can participate.

  • Give to an organization promoting universal basic income. There are a number of advocacy groups promoting guaranteed income and other forms of cash support, such as an expanded Child Tax Credit — most notably Mayors for a Guaranteed Income and the Economic Security Project. If you want to support direct giving as a concept and advocate the scaling up of this form of giving, you might consider donating to one of these groups.

  • Support a crowdfunding effort. Crowdfunding sites like GoFundMe are full of opportunities to give directly to people in need of funds for basic needs. Many of these fundraisers are for healthcare costs. You can help cover the expenses of cancer treatment, service animals and much more. These gifts are usually not tax deductible. There is also little way to verify the veracity of claims on such sites, or that the money is spent as promised. 

To engage in direct cash transfers in the true spirit of the work, give with no strings attached. Giving with no strings attached is integral to direct giving. When you give in this way, you are simply transferring cash and letting the recipient spend it as they see fit. There is no tracking of expenses, no reporting back, and no controlling what they do with the money. While there are many ways to give directly, this one is a constant: Give with no strings attached.

Have suggestions for improving this brief? Please email us at editor@insidephilanthropy.com.