New Report Shows Transformative Benefits of Cash Infusions, Debunking Common Misconception

New analysis from the Roosevelt Institute shows that financial windfalls—such as those resulting from policies like reparations or student debt cancellation—change recipients' lives for the better

May 18, 2023
Alice Janigro
(212) 444-9130

New York, NY – The unique economic impacts of the COVID-19 pandemic prompted policymakers to implement direct-cash policy solutions, including the expanded Child Tax Credit (CTC) and stimulus checks, to boost individuals’ and families’ financial security. Despite the clear social and economic benefits of these payments, the mainstream media narrative around monetary windfalls—any shock to an individual’s or household’s financial status beyond their “normal income”—prevailed, and contributed to policymakers’ decision to cut the expanded CTC. False narratives about the effects of monetary windfalls—based on racist conceptions of irresponsible spending habits—have contributed to the impact of these policies being under-explored.

A new Roosevelt Institute report released today, Understanding the Effects of Windfalls: What People Do with Financial Payouts, and What It Means for Policy, aims to close that knowledge gap by shedding light on the promise of reparative policies that might give unexpected, one-off boosts to people’s income. Authors Katherine Rodgers, senior associate at Kroll; Sydney A. Grissom, analyst for BlackRock; Lucas Hubbard, research associate at the Samuel DuBois Cook Center on Social Equity at Duke University; and William “Sandy” Darity, Jr., Roosevelt senior fellow and Samuel DuBois Cook professor of public policy, African and African American studies and economics at Duke University, review and summarize the existing literature to highlight how financial windfalls can help unlock many economic doors and provide an antidote to financial stress. In particular, they examine evidence of financial benefit following large windfalls, like lottery wins and inheritances, and explore the potential of substantial government payouts that redress for past harms, like reparations.

“Widely held, inaccurate, and racist beliefs about dysfunctional financial behavior of Black Americans as the foundation for racial economic inequality leads to a conclusion that monetary reparations will be ineffective in eliminating the gap,” write the authors. As their paper explains, reparations for Black Americans would “lead to significant improvements in recipients’ financial and emotional well-being.”

To make the affirmative case for reparative policies as a public policy tool, the authors share the following evidence:

  • Windfalls do not lead to recipients leaving existing work. If recipients do leave their job, it’s often to pursue a better job or return to school.
  • Windfalls of a significant size can unlock opportunities, with many recipients going on to become self-employed, start businesses, or invest in a responsible manner.
  • Those who receive windfall payments save at a higher rate than those who don’t, and any increases in consumption following a windfall are correlated with higher levels of health and well-being for recipients.

“Policymakers mustn’t ignore the power of windfall payments to transform people’s lives,” says Darity. “Our analysis underscores the importance of evidence-based policymaking in promoting financial security, closing the racial wealth gap, and building a more inclusive economy.”