How Incorporating Behavioral Science into Cash Transfer Programs Is Changing Lives

Josh Martin and Laura Rawlings at Next Billion: “…Today, a new generation of cash transfer programs – currently being piloted in several countries in Africa – uses behavioral insights to help beneficiaries decide how to spend their cash and follow through on those plans. But the circumstances under which they receive the funds—like how long they have to wait on payment day or how close the local market is to the payment site—impact whether they put that intention into action. Other often-overlooked program design factors, such as the frequency of payments or how the purpose of the cash is framed, can disproportionately affect how people spend (or save) their money. Insights from behavioral science show that people act in predictable ways—and we can use that knowledge to design cash transfer programs that support people’s goals and continue to set them up for success.

For example, in our work, we have found that the way payments are made often caters more to administrators’ convenience than beneficiaries’ needs. But some innovators are already changing the timing, location and frequency of payments to suit recipients. For instance, GiveDirectly, a nonprofit that provides unconditional cash transfers, is experimenting with allowing beneficiaries in Kenya to choose when they’d prefer their payments to occur. This is important because getting money at the wrong time can actually increase stress. When cash arrives infrequently, it forces recipients to stretch funds until the next payment. But if it is transferred too often, recipients must save slowly over time, pulling their attention away from other critical tasks. While it isn’t always possible to pay everyone according to their ideal schedule, even offering some payment flexibility may help recipients achieve their goals more quickly.

A simple prompt for beneficiaries to consider how they’d like to use their money right before receiving it can also support their financial goals. Other tactics include reminders to follow through on plans, systems to provide feedback to people on their savings progress, and wallets to help them physically separate (and thus mentally separate) what they want to spend routinely from what they want to set aside for the future. Many inexpensive options exist that are fairly easy to put in place.

To bring more of these solutions to cash transfer programs, ideas42 and the World Bank, with financial support from the Global Innovation Fund, are launching a new initiative, Behavioral Design for Cash Transfer Programs. Working with government partners to identify the best options for incorporating behavioral designs in cash transfer programs across several African nations is a critical next step in improving this anti-poverty tool. We can then work to make behavioral science an automatic part of any social protection program that features a cash transfer….(More)”.