Direct Cash Payments Inject More Trust into Philanthropy

Unrestricted direct cash payments place trust in recipients and provide a faster, less burdensome path to providing aid.

As the COVID-19 pandemic reaches its one-year mark, the need for direct aid and assistance has increased amidst record unemployment and other economic hardships.

The pandemic’s economic crisis has hit low-income families especially hard and has disproportionately affected Black, Latine, and Indigenous communities. According to data from the Census Bureau’s Household Pulse Survey, nearly 83 million adults reported that their household faced difficulties covering usual expenses such as food, rent or mortgage, and medical costs. Hardship rates are even higher for households with children.

While assistance in the form of services, such as food banks, have been an integral part of the COVID-19 response, another relief method has gained significant support: cash.

Providing assistance in the form of cash was a model for community aid before the pandemic and has roots in Dr. Martin Luther King Jr.’s legacy. He advocated for cash giving through initiatives such as guaranteed basic income, a system that provides individuals with cash payments as a means to create an income floor and combat poverty.

In response to the pandemic, distributing cash payments directly to those in need without any restrictions on how they can be spent is crucial for immediate relief and for allowing beneficiaries to address the varieties of their financial needs.

The benefit of unrestricted cash aid is also applicable to the distribution of funding in the philanthropic sector. For wealthy donors, giving cash to organizations without restrictions forgoes the burdensome application and reporting requirements of traditional philanthropic methods such as grants. Non-profit organizations expend a significant amount of time and energy into fundraising and grant proposals, and when facing a crisis that needs an immediate aid response, this process often diverts time and resources away from that response.

While the urgency of the pandemic has significantly bolstered support for unrestricted cash giving, its popularity has steadily risen over the past decade and has contributed to research that has proven its effectiveness and dispelled stereotypes about poverty, such as the notions that cash will disincentivize work or be spent on cigarettes, alcohol, or something equally unproductive and unintended.

Research results that consistently support cash giving, in combination with recent large unrestricted cash donations from billionaires to nonprofit organizations, portray a promising shift in how power and money are distributed in philanthropy. A cultural embrace of unrestricted cash donations also offers another method of philanthropy that can strengthen the efficacy of relief efforts worldwide.

Philanthropy Gets Called to Action

The philanthropic sector typically facilitates cash donations through private foundations and donor-advised funds, (DAFs). Both forms of philanthropic organization allow funders a significant amount of control over how and where charitable money is spent.

Private foundations are usually entirely funded by an individual, family, or company and can qualify as a 501(c)(3) tax-exempt organization. DAFs receive money from donors into accounts and then use a “sponsorship” 501(c)(3) organization to manage the money. These organizations are attractive to wealthy philanthropic funders due to their advantageous tax benefits and oversight on charitable expenditure.

Yet, private foundations and DAFs have been criticized for compiling charitable money in massive amounts and distributing it too slowly. A coalition of billionaires, academics, and large foundations called the Initiative to Accelerate Charitable Giving is advocating for tax reform in order to move more than $1 trillion held in private foundations and donor-advised funds into charity, arguing that Congress can change current laws to motivate funders to distribute philanthropic capital more quickly.

Individual billionaires have also created their own initiatives to encourage money flow within philanthropy. Former Amazon executive David Risher and his wife, author Jennifer Risher, launched a campaign titled #HalfMyDaf to urge donors to distribute at least half of the money in their DAF accounts into charity. $8.5 million was distributed to a variety of nonprofits in 2020 and a new campaign will begin in February for 2021.

While the Initiative to Accelerate Charitable Giving and #HalfMyDaf seek to increase cash flow within philanthropy, wealthy donors such as MacKenzie Scott, and Reed Hastings, and Patty Quillin and large organizations such as Blue Meridian Partners have opted for unrestricted cash donations by directly giving to organizations providing COVID-19 relief payments.

In addition to providing pandemic-related support, Scott, Hastings, and Quillin have made unrestricted donations in the tens of millions to historically Black colleges and universities, with Scott also contributing significantly to racial equity and LGTBQ+ equity groups. Twitter and Square CEO Jack Dorsey has given $15 million to the Mayors for a Guaranteed Income coalition, a coalition of mayors testing out guaranteed basic income programs in their cities.

While it is still to be seen how these philanthropic initiatives will continue post-pandemic, the current call to action provides the opportunity for the philanthropic sector to incorporate unrestricted cash transfers as a viable method of aid. Recent donations from wealthy funders such as Scott and Hastings will also hopefully create a permanent shift among billionaires for unrestricted, or less restricted, donations.

Organizations with High Community Investment Have the Tools to Respond

While billionaires and large organizations provide significant philanthropic funding, organizations with high community investment have the necessary infrastructure to understand immediate needs and distribute aid.

Family Independence Initiative, a nonprofit that uses technology to provide economic opportunity in low-income communities, is one example of how an organization can rely on pre-existing community infrastructure as a means to deliver assistance.

“It is important for organizations to recognize that social capital is present within communities themselves, and they should work within those present systems,” said Rae Oglesby, Vice President of Membership and Communications at Family Independence Initiative. “The families we invest in have shown us that people in undervalued and underinvested communities have been working together for decades so they can all move up, together. Our job is not to come in and tell them what to do, but to learn from them and invest in their initiative.”

By trusting in the initiatives of communities rather than outside sources in determining how to tackle issues of inequality, organizations such as Family Independence Initiative provide a blueprint for how philanthropy can deliver assistance that builds on the strengths that beneficiaries already have.

Throughout the pandemic, big philanthropy has relied on organizations with high community investment to deliver cash assistance. For example, Stand Together, a nonprofit organization founded by Charles Koch, joined forces with Family Independence Initiative to distribute more than $100 million in direct cash payments to more than 200,000 families across the nation. The national effort enlisted the support of 250 local organizations to identify and verify recipients.

Other initiatives providing cash relief have pivoted their existing resources to focus on addressing the economic hardships of the COVID-19 pandemic. Local efforts across the country have raised funding through individual and foundation donations.

Research Dispels Myth, Encourages Greater Trust

Along with providing immediate relief, cash aid programs have provided insight into the effectiveness of this method of philanthropy. Programs and studies from all over the world have conducted extensive research on cash transfers, with over 300 studies available as a resource from GiveDirectly. While the scope of research is varied due to the broad range of issues that cash can address, results have overwhelmingly supported two key findings: that cash is effective in helping communities and that recipients of cash do not misuse it.

The fear of cash aid being misused by recipients is part of a greater cultural narrative that is rooted in prejudice and injustice. One of the most common misconceptions – that cash transfers will allow poor people to buy cigarettes and alcohol – has been demonstrated to not be the case in several studies.

Former Stockton, CA mayor Michael D. Tubbs (D-Stockton), who helped initiate the guaranteed income program there, commented on the importance of trusting recipients with cash assistance: “I think there will be times throughout the program where someone may spend the $500 in a way that will be different in terms of how I spend it,” Tubbs told NPR. “But I also think we’re put on earth not just to work and not just to have the bare minimum but to enjoy.” NPR also noted that the program’s data has shown that money was mostly spent on food, utility bills, and car repairs.

In addition to confirming that cash transfers are effective and spent responsibly, surveys of cash recipients have provided insight into external factors that hinder relief efforts. Mission Asset Fund, for example, received more than 11,000 survey responses from recipients of cash aid and found that families that were protected by an eviction moratorium in California were more likely to pay their bills on time in comparison to their counterparts in states without moratoriums. This correlation provides organizations with a more comprehensive understanding of the stresses faced by their beneficiaries, which can then shape relief efforts and policy to better address the needs of specific communities.

Despite Limitations, Cash Works

While cash has been proven to be effective, solutions in philanthropy are not one-size-fits-all. Donations of goods and services, called “in-kind” transfers, are still an integral part of shaping solutions. Aid responses require individual evaluation for each situation and guidance from existing sources. Previous research can help future responders choose between in-kind transfers or cash transfers to maximize positive impact.

Additionally, the impact of cash aid is dependent on the specific needs and nuances of communities where cash transfers are being disbursed, and programs should be meticulously structured and reviewed to ensure they are not creating unintentional harm. One World Bank study, for example, found that non-beneficiaries were negatively affected by rising food prices due to a regional cash transfer program in the Philippines. The study concluded that this could be avoided by making benefits universal.

Cash aid programs must also consider the possibility of benefits cliffs, which could jeopardize recipients’ eligibility for benefits programs if they have a slight increase in income. Programs can strengthen their impact by providing benefits counseling and guidance to recipients and by working with external benefits programs to diminish the possibility of benefits cliffs.

The fact remains that as the pandemic continues, the need for immediate support remains urgent. Cash aid is a flexible approach and accompanying research has provided valuable insight into its capabilities, as well as other factors of relief that benefactors may not have been aware of previously. Organizations with high community investment are a key partner in distributing cash aid to those in need, and philanthropy can align its priorities with these organizations as a way to distribute philanthropic power more evenly.

Even after the conclusion of the pandemic, assistance in the form of cash will remain a key aspect of combating poverty and creating economic opportunity. Research and survey responses stemming from cash transfer programs during the pandemic will hopefully help solidify unrestricted cash giving in philanthropy and shift the cultural narrative away from distrust in cash aid and towards the continuously proven message that cash works.

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