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Two poverty studies bolster support for Child Tax Credit expansion

Just a small amount of money can lift poor folks and their children out of poverty, according to a pair of recent studies, results that could shape government policy on how to help the nation’s neediest.

One study found that a cash infusion of $333 a month to poor mothers helped their children’s brain development, which could set them up for better educational and professional futures. The second study found that providing $500 in assets to poor Bangladeshi farmers was enough to grow their financial security.

The findings come as lawmakers debate whether to continue the expanded Child Tax Credit that provided advance monthly payments to many low-income families and was credited with alleviating child poverty in the U.S.

Baby’s First Years study

BROOKLYN, NEW YORK - JULY 12: Edie Abrams-Pradt and Jen Abrams celebrate new monthly Child Tax Credit payments and urge congress to make them permanent outside Senator Schumer's home on July 12, 2021 in Brooklyn, New York. (Photo by Bryan Bedder/Getty Images for ParentsTogether)
Edie Abrams-Pradt and Jen Abrams celebrate new monthly Child Tax Credit payments and urge congress to make them permanent outside Senator Schumer's home on July 12, 2021 in Brooklyn, New York. (Photo by Bryan Bedder/Getty Images for ParentsTogether)

In the Baby’s First Years study, researchers recruited 1,000 mothers in 2018 shortly after they gave birth at hospitals. Participating mothers, most of whom were Latina or Black with an average annual household income of $20,000, received either $333 or $20 a month for four years and could spend the cash gift as they wished.

Infants in households that got $333 had a higher brain frequency range within their first year of life, compared with those whose families got $20 each month. Researchers found that brain activity is associated with higher cognitive scores, as well as better social and emotional skills.

“It’s very hard to understand how children are doing when they are infants. They aren’t at a place where it’s possible for them to complete cognitive tests, so that’s where measuring brain activity is extremely novel,” said Lisa Gennetian, Pritzker professor of Early Learning Policy Studies at Duke University and co-author of the study. “The combination of this measurement and a different economic environment has helped us identify causal links between getting the cash and having more high-frequency brain activity.”

Why Do People Stay Poor study

Businessman hand sending money to another business person. Transaction, payment, salary and banking concept.
(Photo Credit: Getty)

The second study “Why Do People Stay Poor” tested two different views on poverty. One is the “equal opportunity” belief that low-income people make individual choices that keep them in poverty. The second view — the poverty trap — puts forth that people have no choice but to work in low-wage jobs and could get out of poverty if society gave them more financial opportunities.

The researchers gave 6,000 households in rural Bangladesh assets like livestock that high-income people in the country had as well. When the participants were tracked down 11 years later, two-thirds had 14% more in assets and it only took the equivalent of $500 for folks to get out of poverty.

“The persistent gains in the long run imply that relative to the gains in efficiency from unlocking the poverty trap, the cost of doing so is indeed low,” Heil said.

The study also found that the stimulus helped recipients move into more lucrative jobs like livestock raising.

“Once the opportunities of the poor are expanded through the asset and training program, we observe that they make economically reasonable choices such as increasing savings,” Heil said, “and making further investments into their small businesses.”

‘Child Tax Credit makes a concrete difference’

Men hands holding a US Government Treasury check
Men hands holding a US Government Treasury check

While both studies began long before the one-year expansion of the Child Tax Credit (CTC) last year, advocates of the credit say they could help inform the debate around if the tax benefit should continue. The measure, which Congress last month failed to extend, helped lift nearly 4 million children from deep poverty and provided cash assistance to 36 million households with children.

“These path-breaking findings [from the Baby’s First Years study] add to the substantial evidence showing that cash assistance like the Child Tax Credit makes a concrete difference in children’s lives,” Danilo Trisi, director of poverty and inequality research at the Center on Budget and Policy Priorities (CBPP) told Yahoo Money. “That’s why it’s imperative that policymakers extend the Child Tax Credit expansion as part of any final agreement on Build Back Better.”

While giving livestock isn’t the same as distributing advance monthly Child Tax Credit payments, Heil noted some similarities.

“The tax credit might be designed to address an intergenerational poverty trap where parents’ poverty deprives children of the opportunity to earn sufficient income later in life,” Heil said. “If parents invest the tax credit on their children’s human capital, it could release this type of trap.”

Ella and Gabriella are the personal finance reporters for Yahoo Money. Follow them on Twitter @bookgirlchicago and @__gabriellacruz.

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