Giving Money to People Rarely Helps Them Improve Their Lives

A story in the Wall Street Journal gives another example of a universal truth–giving money to people almost never improves their lives and often leaves them worse off.  An example in the US is the abject failure of giving people a guaranteed income or free health care.  People don’t use the handouts to do more with their lives, they often waste it.  The WSJ article focuses on microlending in poor countries.  This became all the rage a couple of decades ago–let’s lend money to people in these countries and they will start businesses or learn a profession.  The article points out that research doesn’t support any value to such programs.  Hundreds of billions of dollars in loans were made by various organizations.  Most hasn’t been paid back, largely because the recipients did nothing productive with the money.  Borrowers get in trouble by not repaying the loans, which they often used for personal purposes.  And of course there was scamming.  Borrowers who took their obligation to repay seriously often ran into serious trouble–for example they purchased less food.

The article of course sparked an intense reaction from the NGO community that makes money of this and other scams.  The real winners are the administrators and staff of these NGOs, and some of the other lenders,  who make money no matter what.  The lesson is that if you want to help people, don’t give them money, give them a free education for a specific occupation, a trade or a profession.  And if they complete the education satisfactorily, give them a leg up to start a job, don’t lend them money.  Better yet, create a high expectation that you are responsible for yourself and if you have the opportunity and the will, you can accomplish anything.   (WSJ Article)