Late last year, Lorrine Paradela got a letter in the mail: she could receive a no-strings-attached gift of $500 a month for 18 months. Paradela, a single mother in Stockton, California, was skeptical that the offer was real. But as someone who works more than full-time and still struggles to make ends meet, she decided to participate, becoming one of 125 people living in Stockton to be part of the Stockton Economic Empowerment Demonstration, a guaranteed income initiative pushed by the city’s young mayor, Michael Tubbs.
New data released today shows how recipients are using the money, which they started to receive in February. The results undermine common criticisms of cash transfers: that the recipients will spend their money on frivolous items or use the cash to stop working. “What we found is that for the most part, people are using the $500 to meet their basic needs,” says Stacia Martin-West, a researcher from the University of Tennessee who is studying the project in a randomized controlled trial along with Amy Castro-Baker, a researcher from the University of Pennsylvania. Around 40% of purchases, tracked on debit cards given to participants, are on food. Another 25% include purchases of home goods, clothes, and at discount stores. Around 12% is spent on utilities.
The median monthly income of participants is $1,800 a month; nationally, the median monthly income is around twice as much. “These are folks that are really having a hard time making ends meet, even though they’re working,” says Martin-West. “I think one of the key findings here is that a lot of folks say $500 is not very much, especially for California. But if we look at the folks who are receiving this money, it’s a 30% increase in their monthly income.”
The pilot is one of several to test a guaranteed income, also called a universal basic income or unconditional cash transfers, in various locations, from Finland to Kenya. Y Combinator ran two small basic income pilots in Oakland and is now planning a larger study. Another large study in four cities, led by a researcher at the University of California-Irvine, will look at the effect on young children when families receive a guaranteed income. Presidential candidate Andrew Yang is running on a policy of giving everyone in America a $1,000-a-month “Freedom Dividend” (though his plan differs in that the money is designed to replace some other government programs, like food stamps).
In Stockton, Mayor Tubbs partnered with the Economic Security Project, a think tank cochaired by Facebook cofounder Chris Hughes, to launch the local pilot. The researchers sent letters to a randomly selected group of people living in a medium-to-low-income Stockton neighborhood and then randomly chose participants from those who responded. Unlike many other social programs, it has no conditions—recipients are free to spend the money however they want, with the theory that the boost in income can make a meaningful difference in their lives.
Lack of trust has been a challenge, says Castro-Baker, as many people understandably questioned whether the project was real. The funds were given on a debit card to make it possible for the researchers to track how participants used the extra money in general (the data wasn’t linked to individuals). But many people immediately transferred the money into a bank account or converted it into cash. “Even after the $500 is loaded each month onto the debit card, people still have a really hard time believing that SEED’s not a scam, especially if they were victims of fraud in the past or experienced something with a predatory lender, or they’re unbanked or underbanked,” she says. “There’s a real milieu of fraud that we’re dealing with.” Since the cards couldn’t track all spending, the researchers also did in-depth interviews with participants to understand how they were using the money.
For Paradela, who has a full-time job taking care of autistic children and a second job with the local schools, along with taking care of her two children and her mother, who has cancer, the influx of cash has helped alleviate some of her stress. “I sleep better,” she said in an interview conducted by SEED that the project has made public. “My mind’s not racing all the time, thinking about next month’s rent and stuff. I know if I get sick and miss work, I know the $500 will help me . . . I know it’s not forever, but at least now it’s helping me if I have to call out for work.”
Jovan Bravo, another participant in the initiative, says that he and his wife were able to use the money to move to a better neighborhood where it was safe for their children to play outside. Bravo, a construction worker who had been working 70-hour weeks—and was just making ends meet, along with his wife’s income—is now able to work slightly less and spend more time with his kids. Cassandra Gonzalez, a 20-year-old nursing student, says she has used the money to buy supplies like groceries and diapers for her baby, and to pay bills, including an unexpected medical expense for her child that insurance didn’t cover. Before the initiative, she says, “I was super anxious. I was estimating how much our check would be and putting away, ‘Okay, this has to go to our rent. This has to go to our utilities.’ I was stressing out over every single penny I was counting. I still kind of do it now, but I’m more relaxed, and I can sit there and enjoy being around my family and not being like, ‘How are we going to do this? How are we going to do that?'”
The pilot will continue to give out money until July 2020, and the researchers will continue to track the outcomes, from the impact on the mental health of the participants to changes in income volatility. They’ll also be looking at how this type of program can interact with other programs, like Medicare and Social Security; the initiative isn’t designed to replace those programs, but supplement them. And then other communities will be able to use the results to design basic income programs of their own.