The Surprising Effect of ‘Free Money’ on Poor Teens

In the US, one predominant belief about “hand-outs” to poor people is that it’s simply a bad idea and that it perpetuates laziness and other undesirable behaviors. A new study turns that belief on its head. In fact, it turns out that increasing poor families’ income can significantly improve their children’s psychological well-being, according to new research.

The evidence comes from a study of adolescents whose low-income Native American families began receiving annual payments from a new casino on their tribe’s reservation.

“I was surprised that the findings from our analysis were so clear,” economist Emilia Simeonova says. “People may assume that giving money to families in need is a good thing, but you still have to prove it. You want to know whether the extra money makes a difference, and in this case I believe we have shown that.”

Simeonova, an assistant professor at Johns Hopkins University’s Carey Business School, conducted the study with colleagues from Duke University and the University of California, Los Angeles. They worked with data from the Great Smoky Mountains Survey, a longitudinal study launched in 1993 to examine the psychological traits of 1,420 poor children in western North Carolina, including several hundred children in the Cherokee tribe. Their working paper is available here.

Four years into the study, the Eastern Band of Cherokee opened a casino in the survey zone and started distributing half the profits as extra cash income for adult members of the tribe. The impact of this new yearly income—about $4,000 per adult, or 20 percent of the average Native American families’ annual earnings—is what Simeonova and her colleagues focused on.


Native children in households with at least four years of extra income showed clear gains in “conscientiousness” (being organized, responsible, and hard-working) and “agreeableness” (behaving unselfishly). The children even showed progress—though less marked—in an unlikely sounding measure of good health, “neuroticism.” As Simeonova explains, neuroticism can be a positive trait in small amounts, indicating self-awareness and an ability to appreciate the feelings of others.

It was surprising, Simeonova says, to find changing personality traits at 11 and 13, ages by which cognitive abilities are considered firmly established. The researchers also found that children at lower levels of psychological development when the study began showed the greatest improvements after the extra dollars started flowing to their families.

“Previous research shows that low-income parents devote most of their resources to their brighter, more promising children, in the hopes of boosting their educational opportunities,” Simeonova says. “But we saw here that parents were spending more time with their kids who were lagging developmentally. We think this accounts for the fact that these children made the greatest gains.”

With the new money, most families living on the reservation stayed there, but families living off the reservation tended to move to areas of demonstrated higher levels of education and income. Simeonova speculates that the children in the study benefitted from this change in environment.

Oddly there were benefits for the parents as well, read on to learn about that.