A little extra cash, especially if you have very little, should make you happier, right?
Not so, according to a new study published by researchers at Harvard University and the University of Exeter.
In the midst of the pandemic, starting in July 2020 to be exact, social scientists gave 1,374 low-income people $500, 699 low-income people $2,000, and 3,170 low-income people nothing. These payments were all separate from and in addition to the stimulus payments made to families by the federal government. The study was funded by an anonymous nonprofit organization.
Of the people included in the study, 80% had children and 55% were unemployed. The median household in the study earned $1,028 a month (from both earnings and government benefits such as food stamps), which comes to about $12,336 a year.
The researchers were hoping to find that the cash payments reduced poverty or somehow made recipients’ lives easier. Instead, they found the opposite. Through May 2021, those who received the cash payments reported less earned income, lower work satisfaction, more financial stress, and less sleep than the control group.
Researchers could not make any firm conclusions as to why those that got extra cash had worse outcomes, but they did theorize that “receiving some, but not enough, money may have made their needs — and the gap between their resources and needs — more salient, which, in turn, may have made them feel distressed.”
That’s one possible explanation. Another is that people spend money they earn far more wisely than money they are given and that spending earned money gives people a sense of dignity that spending unearned money does not.
This is why policies such as the earned income tax credit, which rewards low-income people for earning money, have more bipartisan support than other programs that simply send people checks.
It’s a lesson we hopefully won’t forget before the next pandemic.
