Child tax credit reduces use of expensive financial services – The Source

Families who were eligible for the Child Tax Credit (CTC) experienced better nutrition, decreased reliance on credit cards and other high-risk financial services, and made long-term educational investments for parents and children, note a new report from Washington University in St. Louis.

University researchers Social Policy Institute (SPI) partnered with colleagues from the Global Economy and Development program at the Brookings Institution and Appalachian State University. They found that families used the CTC to cover living expenses without reducing their employment.

“Expanded child tax credit payments offered by the federal government from July to December 2021 — which gave most families $250 to $300 a month for each child in their household — were one of the largest family supports ever implemented in the United States,” said Stephen Roll, research assistant professor at the Brown School and associate research director at SPI.

Roll

“While there has been a great deal of research on the potential effects of these payments on family well-being, our study is the first to follow the same CTC recipients over time and compare how the outcomes of CTC recipients differ from those of a comparison. group of families not eligible for CTC,” said Roll, author of the new report.

The CTC survey was administered in two waves: July 8 and July 13, 2021, just before the first Child Tax Credit payments were sent; and between December 27, 2021 and January 14, 2022, shortly after the final payments are deposited.

The most commonly reported uses for CTC were:

  • everyday expenses such as housing, food and utilities (69.6%)
  • clothing or other essentials for children (58%)
  • buy more food for the family (55.7%)
  • savings for emergencies (49.4%)
  • debt repayment (41.8%)

The authors report that CTC-eligible households were significantly more likely to reduce their reliance on expensive and risky financial services such as payday loans and pawnshops and that they reduced their blood plasma sales rates. , compared to families not eligible for credit.

This reduction was especially prevalent among black, Hispanic, and other minority families, as well as low- and middle-income families. These results indicate that CTC can help reduce both racial financial inequality and a growing income gap in the United States.

“Overall, we found that families who received CTC used their payments to cover essential expenses like food and bills, while investing in their children, like paying more or better for child care. children, tutoring and extracurricular activities,” Roll said. “We also found that CTC was associated with improvements in family food security, decreased reliance on expensive financial services like payday loans, and improvements in emergency savings. . At the same time, we found no evidence that CTC payments discouraged parents from working.

“Importantly, we also found that many of these improvements were particularly important for racial and ethnic minority families, as well as low- and middle-income families, suggesting that the payments can serve as a important tool to address issues related to many of the economic disparities that these families face in the United States,” he said.

The research, along with other research on the child tax credit, has shown how important it has been in helping families meet their short and long-term needs and in helping to significantly reduce the rate of child poverty in the United States, Roll said.

“If the expanded CTC is not renewed in the future, we would expect most of these benefits to disappear,” he said. “Given that child poverty has enormous costs to society in terms of increased health care expenditures and reduced lifetime incomes, renewing the CTC appears to be an effective and simple way for policy makers to improve the long-term economic mobility of Americans.”

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