I was walking down the street this weekend when two homeless men stopped me to ask for a couple of dollars to buy a sandwich. I told them I didn’t have cash on me but one of the men suggested that I could just go to Subway and buy them the sandwich on my credit card. I agreed and while we were waiting for the sub, he says to me “It’s a shame you didn’t have cash, we would have been able to get cheaper food.” Now my first thought was something akin to “You ungrateful SOB,” but then I realized he was right and in fact being a good steward of my charity. If I had given him the seven dollars I spent at Subway he might have been able to go to the corner store where he could have gotten a decent meal for $4 and still had $3 to put toward his next meal. If I wanted more bang for my buck in terms of impact on his empty stomach I should have just given him cash.
This is a problem with our welfare system as well. There are programs to pay for heating, food, medical expenses, etc. but they are all in separate pots and restricted for a limited purpose. Not only does that mean people are forced to go to dozens of different places with different application processes to meet their needs, they are also not able to budget in a way that works for them. This has led to a black market where people sell or trade their food stamps to pay for rent, shoes, heat, diapers and other necessities. While some people are appalled by the business of buying and selling welfare benefits, the practice allows people to make ends meet.
So why don’t we just give out money? One argument you hear frequently is that by giving a sandwich I at least know my money is spent on food. If I just gave the man $7 he could have used it to fuel the addiction which caused him to be on streets in the first place or for some other nefarious action which would have left him off worse than before and still hungry. The giving of sandwiches is intended to ensure that the money doesn’t go toward actions that would hurt the recipient but it also prevents them from doing anything with the money that might help them, so that, possibly, they would not need me to give them a sandwich. You can’t build financial stability by saving food stamps in a bank account and then using them to pay your heating bill in the winter. In that way it undermines the financial health of the recipient. The system of earmarking donations assumes that the recipient has become poor because they don’t know how to manage their money. So we take control of their financial future.
Malcolm Gladwell points out that any cost that helps a person out of homelessness is far more cost-effective then just meeting their presumed needs in this fascinating piece. He gives the example of a program in Denver that gives chronic homeless people free apartments because the cost of providing an apartment and a case worker is far cheaper than the housing, medical, and other expenses that come as a result of having them out on the streets. Fellow ChangeEngine author Jasmine Arnold offers another example in her blog about asking versus assuming the needs of homeless people. She cites an article from The Economist profiling a charity called Broadway, which moved 84 percent of their clients off the streets simply by asking individuals what they needed to improve their lives. To quote The Economist piece: “The most efficient way to spend money on the homeless might be to give it to them.”
I’d like to challenge the assumption that the way the givers of welfare earmark funds does a better job in lifting people out of poverty than the way the recipients would spend it. As economist Uwe E. Reinhardt argues, it is in ineffective. If we are looking to maximize the impact on the recipient per dollar we give then we should give money not benefits. Why? We aren’t experts in other people’s needs. What we think people need might be different than their reality but the walls we’ve built around their benefits prevents them from accessing those funds for anything beyond our understanding of what should lift them up from poverty.
Let’s stop defining people’s needs for them. If we’re going to maximize our impact on someone per dollar spent, we’ve got to stop assuming we have the answer and start asking some questions. Let’s stop giving sandwiches and start helping people get the reigns back on their financial futures.