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Development and philanthropy are as subject to fads as any other industry. While microfinance currently rules the roost, conditional cash transfer programs, known by the acronym CCT, are attracting increasing attention. CCTs are subsidy payments for the poor that attempt to overcome the known problems of traditional welfare, namely that welfare payments do not provide incentives for recipients to change behaviors or improve their circumstance.  Like traditional welfare payments CCTs use government funds to aid poor families. Unlike most traditional welfare, CCT participants must “earn” their payments by taking positive actions such as attending school, receiving vaccinations, or partaking in job training programs. Governments and individuals are thus linked in a “social contract” that has possible benefits for both sides: for extremely poor families, cash provides immediate assistance; for the government, the program’s conditions help promote long-term investments in human capital which will hopefully lower the cost of future social services.

CCTs are becoming increasingly popular not only because the theory is quite attractive but also because programs in Brazil and Mexico seem to be working. Several studies have indicated that CCT participants are more likely to take the positive actions the programs encourage than those receiving traditional welfare payments. Many questions still remain, though, about how best to design a CCT for maximum positive impact with the lowest cost.

One of the most common types of CCT encourages school attendance. For families living in poverty, the cost of sending a child to school can involve more than just educational fees. The “opportunity cost” of attending class—generally measured in potential wages lost as a consequence of having a child who’s in school rather than taking care of younger siblings so parents can work, or working himself—can be too great to justify the expense and delayed benefit of a formal education. “People don’t have an incentive to be as educated as would be socially optimal,” argues Dr. Leigh Linden, a Columbia University economist who spoke with Philanthropy Action about his research on a conditional cash transfer (CCT) program in Bogota, Colombia. In the long-run, education is an invaluable asset and an important component of sustained economic development; but the short-run calculus of survival can easily overwhelm the long-run benefits. Ideally, a CCT program allows families to avoid viewing education as a trade-off.

Working with an established educational CCT in Bogota, Dr. Linden, a World Bank economist, and a Colombian Ministry of Education official tested how the structure of a CCT influenced the program’s results. Typically, an educational CCT provides families with a monthly or quarterly payment for meeting attendance targets. Given what other research has shown about the poor’s ability to save given appropriately timed offers, Linden and his team wondered if the timing of payments could be changed to encourage not only attendance but re-enrollment.

In the Bogota program, parents of students from grades five to eleven receive a bi-monthly payment for ensuring that a child attends at least 80 percent of his or her classes. The study measured two different adjustments to the program and compared them to a baseline of families who continued to receive payments on a bi-monthly basis. The first approach lowered the monthly payment from 30,000 Colombian pesos ($15USD) to 20,000 pesos ($10USD), while putting the other 10,000 pesos into a virtual savings account that families couldn’t access until one week before enrollment for the next school year. The second approach also lowered the monthly payment to 20,000 pesos, but instead of an additional payment at re-enrollment, the program guaranteed a payment of 600,000 pesos ($300USD) if a child graduated from high school and enrolled in a tertiary program, such as a vocational school.  In this scenario not only the timing of the payments changed, but their overall value increased as well.

Both approaches yielded significant gains in attendance and re-enrollment when compared to the standard bi-monthly payments, and the second succeeded at increasing the percentage of students matriculating to a tertiary program. As Dr. Linden explains, this matters because “if the family is making an immediate trade-off between the wages the child would earn and the benefits of going to school and receiving the transfers, then we’d see slightly lower attendance patterns over the course of the academic year.” Essentially, the success shows that the amount of the payment isn’t as important as the fact of the payments. By lowering the payments the study risked discouraging attendance for children of families desperately in need of money. By observing the opposite effect, however, Linden’s study revealed that families are well aware of the benefits of prolonged schooling—so much so that they are willing to delay cash payments until it’s time to re-enroll or move on to a tertiary program. Clearly, the families want to invest in education—enabling them to do so by creating an education savings account seems to be a promising approach.

The study also found some very interesting side effects, both positive and negative. On the positive side, Linden discovered that “having one of your friends [in the program] was incredibly beneficial—actually, as beneficial as having the direct benefit yourself.” Put another way, a child with a close friend in the program increased his or her attendance just as much as the child in the program, even without the payment. Interestingly, though, there was no additional increase in attendance for children who had two friends in the program, suggesting that one friend exerting positive peer pressure is all it takes. What this means, according to Linden, is that “there are really strong peer effects that are operating, so that you don’t necessarily need complete coverage of a student’s peers in order to get them to behave differently.” This finding means the cost of success in CCT programs might be much lower than expected due to spillover effects.

On the negative side, the study revealed that families with multiple children, but only one enrolled in the program, reduced their education spending on the non-enrolled children, often going so far as to remove them from school completely. “It may be the case,” suggests Dr. Linden “that the resources are better spent, in pure financial terms, on the child that is being given the subsidies.” While it’s heartbreaking to consider families having to decide which of their children to educate, it is a daily fact of life for poor families in the developing world. Given their limited resources and the balance between current needs for food and shelter and future income, investing in the child with the best chance for success might make the most sense. Notes Linden, “We know for a fact that work opportunities and educational opportunities are very disproportionately allocated along gender and racial lines.” Ultimately, Dr. Linden fears, “that these families are making these decisions because the market is discriminatory.” In the multiracial society of Colombia, this is especially problematic. Darker-skinned children are likely to confront much more prejudice than their lighter-skinned siblings. If families are taking this into consideration, they and the CCT risk perpetuating and entrenching discrimination.

While Dr. Linden remains quite optimistic about the future of CCTs, he also pointed out that there are many areas where improvements are still needed. “We’ve done a pretty good job at documenting that these programs get kids into school. What we haven’t done is document that these kids are now learning things they wouldn’t have otherwise learned.” Increasing attendance, in other words, only addresses one issue in the fight to improve education—it’s also important to ensure children are leaving school with valuable knowledge. Improving the quality of education also needs to be addressed, as do such issues as decreasing illness-related absences and building more schools.

Where to go from here? Dr. Linden suggests, “from a policy standpoint, I think we need to be a lot more creative with the payment structures—what exactly we’re [encouraging].“ Keeping children in school is as important as getting them there in the first place—payment structures need to reflect these dual goals. Linden’s study shows this can be achieved without raising the level of the payments, but by merely changing the timing of when families can access the money. More than anything, the study shows that we have a lot left to learn about how best to structure CCT programs.

Perhaps the “single biggest improvement” awaiting CCT schemes Linden believes involves developing a method to determine which families are most likely to alter their behavior. CCTs have the potential to eat up government revenues if the state tries to cover all of its needy population with cash incentives. Ideally, donors and programs can focus on families and individuals who will respond the best. Determining who they might be, and why, are questions that still need answers.

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