What do homeless people do with cash aid? A new study found out | Homelessness

In 2002, the then San Francisco supervisor Gavin Newsom proposed legislation to cut welfare assistance to nearly 3,000 homeless people living in the city from $395 a month to $59 a month, and divert the budgetary savings toward shelters and other services. It was promoted with the name “Care Not Cash”.

Newsom’s campaign tied the unconditional payments to drug and alcohol abuse. As the San Francisco voter’s guide spelled out: “[H]omeless people who are addicted to drugs or alcohol end up spending their welfare checks on their addictions instead of meeting their basic needs.” The framing worked. The measure passed with nearly 60% of the vote, and Newsom used the publicity to propel his political career to San Francisco mayor and, ultimately, California governor.

Newsom’s framing was just a different iteration of an old message: it doesn’t help to give poor people money. As that thinking goes, the unhoused, Ronald Reagan’s “welfare queens” and those with substance abuse issues will just waste it.

The results of a new study in Vancouver, Canada, test this stereotype. Through its New Leaf Project, the charitable organization Foundations for Social Change gave people who have been homeless for less than two years a one-time deposit of $7,500 in Canadian dollars (about US$5,600). They also received coaching and workshops about spending. Other groups received the money and workshops with no coaching, while some received the training but no cash and no resources at all.

The foundation then analyzed the program’s effect on the 115 participants, who were identified through local shelters. Not only did its findings contradict the conventional wisdom about giving poor people money, the results also suggest that cash transfers may actually reduce government spending.

Those who received money in the trial increased their spending on rent, food and clothing. They didn’t buy so-called “temptation goods” like alcohol, drugs and cigarettes.

None of this is surprising to those who work in homeless advocacy. “Every individual has different needs, and cash allows them to be addressed,” said Jennifer Friedenbach, executive director of the Coalition on Homelessness in San Francisco. “People tend to be really resourceful and, if most of their issues are caused by lack of money, you’re fixing it by providing a cash transfer. It gives people the flexibility to address their issues without bureaucratic complications.”

group of people holding signs
‘Every individual has different needs, and cash allows them to be addressed’: Jennifer Friedenbach (front left), executive director of the Coalition on Homelessness. Photograph: Jessica Christian/AP

Jiaying Zhao, an associate professor of psychology at the University of British Columbia and one of the study’s co-authors, said: “The result turned out to be a best-case scenario. Housing improved, it reduced homelessness, it increased spending and savings over time, and was a net savings for government and taxpayers.”

Comparing those who received the money and those who didn’t, the study found that those who got the cash secured enough housing on their own to save the government $8,277 (about US$6,150) per person. Even subtracting the initial payment, the program came out ahead with a net savings of $777 (close to US$580) per person.

That said, there are limitations to the study. The researchers relied on participants to self-report spending, and self-reporting often comes with a tendency to minimize behaviors seen as negative. And while the study authors suggested such an approach could work well in places such as New York and San Francisco, its small sample size was not of a scale needed for a large city. Perhaps the biggest caveat is that the study excluded those who had been homeless for long periods of time and those with severe substance abuse or mental health problems; these segments of the unhoused population may need what Zhao called a “cash-plus” program with treatment and mental health services.

Steve Berg, chief policy officer for the National Alliance to End Homelessness, said: “We have a lot of people who, because of the economy, are homeless and working every day, but just can’t get the money together at one time to do what you need to do to get into an apartment. People with severe behavioral health disabilities need other things, and if we can get a whole bunch of people who have jobs and are homeless out of homelessness, it’ll free up resources for cases who have more complex issues.”

The Canadian researchers believe their work could potentially affect beliefs about people experiencing homelessness. They also asked 1,300 US residents to predict how the homeless participants in the Canadian study would use their money. Most believed the unhoused would spend on temptation goods more than those who are homed. But when those people were shown the results from Vancouver, their support for cash transfer dramatically rose.

“We found two ways that can improve public perception” of how to assist the homeless, Zhao said. “One was a utilitarian message, which described how cash transfers reduced people’s reliance on social services and created net savings for taxpayers. The other was counter-stereotype messaging, how cash transfers increased spending on food, transit, durable goods, but not on alcohol, drugs or cigarettes. It counteracts people’s preconceived ideas of homelessness.”

But influencing public opinion is an uphill battle, added Berg. “The difficulty is we have hundreds of years of policy based on the idea that giving cash to low-income people was a bad thing, that they’ll make bad decisions and have to be monitored to make sure they’re using it the right way. There are ideological barriers in the way of implementing this on a bigger basis, but we’ll see if we can get past those.”

A drone’s view of a homeless camp in Los Angeles.
The researchers believe their findings can improve public perception of homelessness. Photograph: Jay L Clendenin/Los Angeles Times/Getty Images

These ideas, predictably, come from the rhetoric surrounding attempts to gut welfare programs. In 2018, researchers performed a close read on San Francisco Chronicle articles covering the 2002 “Care Not Cash” campaign. They found “that homelessness was framed as a threat to businesses, tourism, and residents of San Francisco and welfare as enabling deviant behavior (eg substance abuse) among people experiencing homelessness”.

Other research has tried to counter the politicized discourse around unconditional cash transfers. An analysis in data from 2010 to 2012 in Chicago found that a one-time lump payment of $1,500 greatly reduced the likelihood of homelessness, while “[t]he estimated benefits, not including many health benefits, exceed $20,000”. In 2019, Stockton, California, piloted a basic income program by distributing $500 a month to 125 people; recipients with full-time jobs jumped from 28% to 40%, while less than 1% of the money was used on temptation goods. A 2023 analysis of how Covid-19 stimulus checks affected US veterans with psychosis or recent homelessness found decreased levels of depression and anxiety.

The Canadian study also suggested that a common feature of housing programs – financial education that helps participants manage their money – did not work. Respondents’ spending didn’t change whether or not they participated in workshop and coaching.

“What’s needed is instrumental support, like getting an ID replaced or finishing their résumé so they can apply for work,” Zhao said. “Workshop and coaching are too aspirational and high-level” when people may be focusing on immediate needs. It’s further evidence that maybe the most efficient use of government money is trusting that people know how to use it best themselves.

“What a five-minute conversation with 10 or 12 or 100 poor people would tell you is: food and lodging and a place to live, taking care of your kids, clothes and diapers – those things all cost money. And that’s what people do with money when they have it,” said Paul Boden, organizing director of the non-profit Western Regional Advocacy Project. “Nothing helps you out of poverty when you live in a capitalist society like money in your pocket.”