Over the last 50 years, the proportion of Americans living in poverty has remained virtually unchanged. In 2023, 11 percent of American’s lived below the poverty line. In 1973, that number was also 11 percent.
During that same period, government spending on poverty reduction programs increased sixfold. In 1973, the federal government spent $5,000 per person in poverty each year. By 2023, that number had grown to over $30,000 per person in poverty and continues to grow today. Today, the federal government spends six times as much money on poverty reduction programs as it did 50 years ago, and the same number of people are impoverished. By the end of fiscal year 2025, the federal government is projected to spend over $1 trillion on poverty reduction programs.
Spending another billion, or trillion, on poverty reduction programs will not reduce the number of Americans in poverty just as it has not reduced the number of Americans in poverty for the last 50 years.
Why have poverty reduction programs not led to a reduction in poverty in the U.S.? Because they are not designed with the incentives to do so or with correct assumptions about human nature.
Consider Temporary Assistance to Needy Families, or TANF, what is more commonly known as “cash welfare.” A family of three in Minnesota can qualify for up to $16,440 a year in benefits so long as their household earns less than $18,084 per year. While one of TANF’s reported goals is to “end the dependency of needy parents on government benefits,” as soon as the household earns more than the income threshold, their benefits disappear. Many poverty reduction programs work the same way. As soon as a beneficiary earns more money, their benefits vanish. In order to earn as much as they can as easily as they can, Americans in most cases should try to remain on these programs as long as possible. Rather than being incentivized to increase their own income by working more hours or finding new employment, they are incentivized to maintain their government benefits at all costs and for as long as possible.
Means-tested poverty reduction programs like TANF do have work requirements; for TANF, 30 hours a week. But in most jobs, working 30 hours per week and receiving a government subsidy is certainly preferable to working a full-time job of 40 hours or more per week, receiving no subsidy, and potentially even earning less money. In short, TANF recipients are not well incentivized to work more hours or find better employment.
There are also plenty of exceptions to TANF’s work requirements, and while 30 hours a week of work is typically required, in practice, only 22 percent of adults receiving TANF were employed at all in an average month. This creates a dependency issue where, rather than relying on themselves, recipients rely on government aid to meet their needs for as long as the benefits last, in stark contrast to the program’s stated objectives.
What options do we have for improvement? Since current poverty reduction programs do not reduce the number of Americans in poverty, one option is to reduce government spending on poverty reduction programs. However, this idea is controversial among voters, with 52 percent of Americans saying that the government should do more to help the poor, not less.
Since most Americans would like the government to help the poor, a more popular option might be to change poverty reduction programs into those that would be effective by incentivizing wise financial decision-making and wealth creation rather than subsidizing current behavior.
One way to make poverty reduction programs more effective would be to shift their focus away from subsidization, and toward skill-development programs like financial literacy courses. In short, the “teach a man to fish” rather than the “give a man a fish” approach.
While there are numerous causes of poverty both in and out of any individual’s control, financial literacy is surely a needed skill among many impoverished households in the U.S. It is well-documented that impoverished Americans make some of the worst financial decisions of all income groups. For example, rather than investing their money, the poorest 1 percent of Americans spend 33 times more money buying lottery tickets than the richest 1 percent of Americans, despite there being only a 1 in 302,575,350 chance of winning the Mega Millions jackpot. Another example is eating out. A JP Morgan Chase study found that the poorest 20 percent of Americans spend a higher proportion of their income eating out at restaurants than middle-class Americans, despite having significantly less disposable income overall.
While critics claim that impoverished Americans eat out because they may not have time, or may be working multiple jobs, government data shows that over 80 percent of Americans who earn less than the poverty line do not qualify as the working poor because they do not work at least part time or at all, so a time crunch is certainly not the cause for the vast majority of low-income Americans.
Financial literacy courses have already seen success. Research from the Consumer Financial Protection Bureau has shown that personal finance education in schools can have a positive effect on students’ and young adults’ financial behavior. A recent study conducted in Texas and Georgia found that students who received personal finance education in schools were less likely to be delinquent on credit card payments, and more likely to have a higher credit score than those that did not take financial literacy classes.
Instead of continuing to pour taxpayer dollars into poverty reduction programs that do not reduce poverty, we should either scale back those programs or reorient them toward programs that incentivize wise financial decision-making like financial literacy courses, as opposed to those that simply subsidize existing behavior.
Dr. Zach Lang is an assistant professor of political science at Anderson University in South Carolina. Tyler Hagen is a Government Affairs Associate for the Greater Capital Area Association of Realtors.
