Families with low incomes who have infants and toddlers face barriers that limit their ability to invest in supports for child development, such as sufficient nutritious food, safe and stable housing, learning materials, health care, and high-quality child care. Lower family incomes are often driven by racist and structural inequities in access to livable-wage jobs, educational opportunities, and other economic mobility resources. In addition, families with low incomes face stressors that can further undermine members’ mental health and relationships. As a result, being part of a family with a low income can have a profound effect on a child’s development.

The brains of infants and toddlers are especially malleable and sensitive to new experiences, making the events of a baby’s first years critical for their future health and development. Yet, in 2019—even before the COVID-19 pandemic exacerbated previous disparities—two out of every five U.S. infants and toddlers lived in families with low incomes of less than twice the federal poverty level (measured by the official poverty measure). In general, for a family of four, this amounted to an annual income of less than $51,500. There are qualitative differences in the experiences of infants and toddlers growing up in families with low incomes, relative to their higher-income peers; such differences shed light on how economic hardship—often exacerbated by structural and racial inequities—can negatively affect the lives of infant and toddlers in families with low incomes. Addressing these gaps during the critical infant and toddler years can improve outcomes throughout children’s lifetimes.

Cash transfers—payments, typically from the government, made directly to individuals or households—are effective and cost-effective mechanisms for supplementing household incomes during times of economic hardship, supporting pathways to economic mobility, and reducing economic disparities. In the United States, cash transfers include refundable tax credits such as the Earned Income Tax Credit (EITC) and the refundable portion of the Child Tax Credit (CTC). The expansion of the federal CTC, as part of the American Rescue Plan Act (ARPA), effectively cut the child poverty rate in half and led to renewed political interest in cash transfers. While this temporary federal expansion was not made permanent, as of 2022, 10 states have implemented a yearly state-level child tax credit. At the local level, mayors have been piloting another approach to cash transfers: guaranteed basic income programs, which offer recurring direct payments to qualifying participants.

This brief first summarizes the evidence base on cash transfers and illustrates how these policies can support infant and toddler development and narrow the income gaps in early childhood experiences. As we will describe, cash transfers can:

• Help parents with low incomes meet the essential needs of infants and toddlers
• Support the mental health of families with low incomes who have infants and toddlers
• Improve the healthy physical development of infants and toddlers in families with low incomes
• Support access to child care and, in turn, employment for families with low incomes who have infants and toddlers

We close the brief by offering recommendations to inform federal, state, and local cash transfer policies that support infant and toddler development and well-being:

• Remove administrative barriers that make it challenging for families of infants and toddlers to access cash transfers.
• Support enrollment in cash transfer programs for families of infants and toddlers by enacting inclusive eligibility requirements.
• Increase the value of cash transfers for the families of infants and toddlers.
• Incorporate cash transfers into comprehensive infant and toddler poverty reduction strategies that also include in-kind support.

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The Evidence on Cash Transfers

While causal evidence on the impact of cash transfers continues to build—and there is still much to learn about what benefit amounts are effective, for whom, and in what contexts—there is nonetheless a strong and compelling evidence base, laid out in this section, that cash transfers can effectively support the heathy development and well-being of young children and lay the foundation for improved outcomes throughout children’s lifetimes. Indeed, a cost-benefit analysis of a U.S. child allowance—based on a systematic review of the evidence for the effects of cash transfers on child development and later outcomes—found that a $1,000 increase in family income in one year for a single-parent family with one child generated social benefits five times greater than the initial investment (via reduced health care costs, crime, need for child protection services, etc.).

Cash transfers help parents with low incomes meet the essential needs of infants and toddlers.

Parents with low incomes who have infants and toddlers face barriers in meeting their children’s essential needs, such as reliable nutrition and stable housing. The importance of adequate nutrition for young children begins during gestation; however, 15 percent of all infants and toddlers nationally are growing up with low or very low food security, meaning that their families needed to reduce the quality and/or the quantity of food in their diets due to budgetary restrictions. Stable, long-term housing  for young children is also linked to healthy child development, yet compared to infants and toddlers in families with higher incomes, those in families with low incomes were twice as likely to experience housing insecurity (4% and 2%, respectively)[i] and three times as likely to live in crowded housing (24% and 8%, respectively), likely due to limited availability of high-quality affordable housing.

Cash transfers can address these disparities and help the parents of young children provide stable and secure nutrition and housing. According to recent research examining the use and impact of expanded CTC payments as part of ARPA, 83 percent of parents with low incomes reported spending their CTC funding on these basic needs, and food insecurity for families with low incomes with children declined following the dispersal of ARPA’s first monthly CTC payments. Likewise, children in families receiving an EITC payment were less likely to experience food insecurity or live in crowded housing. Research on guaranteed basic incomes is in its infancy, but one pilot program found that these cash transfers are overwhelmingly spent on essential needs—most frequently on food. Another study found that direct cash transfers in the year following the birth of a child led to increased spending on child-specific goods, such as books, clothes, and toys.

Cash transfers support the mental health of families with low incomes who have infants and toddlers.

Living with a low income can contribute to parental stress that may negatively influence a parent’s mental health and, in turn, their children’s mental health. Individuals living in poverty are more likely to experience depression, and parents suffering from depression may have less emotional and psychological bandwidth for sustaining positive parent-child interactions in a consistent and ongoing way. Mothers of infants and toddlers with low incomes were nearly 1.5 times as likely to rate their own mental health as less than “very good” relative to their higher-income peers (27% and 19%, respectively).

Evidence from the EITC and expanded CTC shows that cash transfers can decrease familial stress and improve parental mental health. Multiple studies have shown that increases in EITC payments contribute to decreases in maternal stress and improved mental health, which, in turn, have been shown to support child cognition, health, and school performance. The temporarily expanded CTC has been linked to decreases in depression and anxiety for parents with low incomes. Similarly, preliminary results from a study of a guaranteed basic income program found that recipients had fewer symptoms of anxiety and depression, reported enhanced well-being, and reported increased ability to spend time with their kids. The amount of the cash transfer matters, too. Research on EITC payments suggests that higher EITC benefits predict larger increases in maternal mental health. However, cash transfer amounts that do not lift parents out of poverty or significantly reduce material hardship may not be sufficient to reduce the psychological stress associated with lower incomes. Nonetheless, even when the amount of the cash transfer was not sufficient to lift a parent out of poverty or significantly reduce their stress, cash transfers can support more quality time between parent and child: Mothers receiving these cash transfers were more likely to report engaging in enriching activities with their child, including reading books together.

Cash transfers may also support infant and toddler mental health by helping to reduce exposure to adverse childhood experiences (ACEs). Infants and toddlers in families with low incomes are over three times as likely to experience two or more ACEs as those in families with higher incomes (13% and 4%). ACEs are one approach to quantifying childhood adversity, and measures of ACEs may include factors like economic hardship, divorce or separation of a parent, being a victim of or witness to neighborhood violence, or living with someone with a substance abuse disorder. Exposure to ACEs raises the risk of a child experiencing trauma or toxic stress, and exposure during the infant and toddler years can be especially detrimental due to babies’ rapid brain development.

Cash transfers can reduce exposure to ACEs that are associated with poverty-related stressors and protect infants and toddlers from the symptoms of poor mental health associated with ACEs. For example, increases in state EITCs are associated with fewer adult suicides and reduced criminal recidivism for women, and are hypothesized to reduce the financial hardship that occurs when a family member is incarcerated. Moreover, refundable tax credits have been linked to short-term reductions in reports of child maltreatment, and state EITCs are associated with reductions in the number of children entering foster care—each of which are hypothesized to result from increased financial security and decreased parental stress. The negative consequences of exposure to childhood adversity can be allayed by a secure and trusting relationship with a caregiver; as discussed previously, cash transfers are associated with decreased parental stress and improved mental health, which would allow parents to provide the supportive care that can protect infants and toddlers from the trauma and toxic stress that may occur as a result of exposure to ACEs.

Cash transfers support healthy physical development for infants and toddlers in families with low incomes.

Living in a family with a low income can impact an infant or toddler’s physical health in multiple ways. Eight percent of babies are born with low birthweights—which affects children’s long-term health and development—and babies in families with low incomes are more likely to be born with a low birthweight. This relationship is thought to result from inequitable access to a nutritious diet and greater stress associated with a low income. The American Academy of Pediatrics recommends breastfeeding for at least six months to ensure that infants receive adequate nutrition and are protected from certain diseases. Babies in families with low incomes are also less likely to be breastfed (78% and 90%)[ii] and less likely to be breastfed for at least six months (47% and 66%) than their higher-income peers, which may be related to higher levels of maternal stress experienced by mothers living with a low income. Regular well-child visits are also linked to improved health outcomes for infants and toddlers. Yet compared to their higher-income peers, fewer infants and toddlers in families with low incomes received a well-child visit in the past year (88% and 93%), likely due to barriers associated with health insurance coverage, availability of services in neighborhoods with lower median incomes, and cost.

Cash transfers can narrow disparities in infant and toddler physical health outcomes. Federal and state EITCs have been repeatedly shown to be linked to lower incidences of low birthweights (especially for children of Black parents), improved maternal mental health, and increased likelihood of breastfeeding. Similar to the findings on benefit amount and maternal mental health, larger cash transfer benefits are associated with higher birthweights and increased likelihood of breastfeeding. One possible reason for these changes is increased access to medical care. Families receiving expanded EITC payments are more likely to have health insurance coverage, and the EITC’s association with increases in birthweights of babies born in families with low incomes is thought to be partly due to increased access to prenatal care. Other possible mechanisms include the reduction of maternal stress related to living with a low income and increased spending on healthy and nutritious food—both of which are associated with cash transfers. Direct cash transfers during a child’s first year of life have also been linked with changes in physical brain development that are associated with the development of subsequent cognitive skills.

Cash transfers can support access to child care and, in turn, employment for families with low incomes who have infants and toddlers.

Parents with low incomes experience barriers to accessing employment opportunities that support longer-term economic security and mobility. For example, child care for parents of young children is critical for their participation in the labor force and ability to access stable, higher-paying jobs. Prior to the COVID-19 pandemic, compared to their higher-income peers, more than 12 times as many infants and toddlers in families with low incomes had no parent able to participate in the labor force (13%, versus 1% for young children in higher-income families).[iii] Fewer than half of mothers in families with low incomes with infants and toddlers were participating in the labor force, compared to nearly three quarters of mothers with higher incomes (46% and 73%, respectively).[iv]

Increases in income due to cash transfers can help the parents of young children afford the cost of child care, which, in turn, may allow them the flexibility needed to enter the labor force. Emerging evidence suggests that unconditional cash transfers, such as the expanded CTC and direct cash transfers from guaranteed basic income programs, may support access to child care, which, in turn, may support employment. For example, parents of young children receiving expanded CTC payments reported using the payments to pay for child care: Over one third (37%) of CTC payments spent on basic needs were spent on child care. In addition, early results suggest that unconditional cash, delivered as part of a guaranteed basic income program, allowed recipients to find full-time employment. That said, most studies on the effects of cash transfers on maternal employment have focused on the EITC, which is conditional on employment: A family must have non-zero earnings in order to qualify. The EITC has been found to be linked with increases in employment, hours worked, and earnings for single mothers of children under age 3 (relative to mothers with older children), in addition to being linked with increased use of child care.

Further research is needed to better understand the characteristics of cash transfer programs that facilitate access to child care and support employment. While traditional economic theory predicts (and some simulations have suggested) that unconditional cash transfers will lead to a decline in labor force participation, more recent studies of the employment effects of the expanded Child Tax Credit—as well as a similar child benefit program in Canada that used real-world data and a U.S.-based randomized control trial—found no evidence of a negative labor market response. Meanwhile, the decision to enter the labor force or increase the number of hours worked is complex for parents of young children. A recent review of the research on child care use and labor force participation among parents of young children suggests that increased access to child care—through reduced out-of-pocket costs or increased availability of public early care and education programs—has positive impacts on maternal labor force participation and work hours; however, the findings also point to considerable variation across different family situations.

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Policy Recommendations

As this brief has illustrated, the evidence base indicates that cash transfers support infant and toddler development and address an ongoing need for American families with low incomes. Families with low incomes often need additional income support to meet their family’s basic needs; cash transfers do this effectively by allowing families the flexibility to determine how to spend their payments to reduce the stressors associated with having a low income and best support their children’s development. To help federal, state, and local policymakers craft new—and strengthen existing—cash transfer initiatives that support infant and toddler development and well-being, we provide four policy recommendations.

Remove administrative barriers that make it challenging for families of infants and toddlers to access cash transfers.

Cash transfers only support infants and toddlers when families are able to access the benefit, and many families face administrative barriers to access. While these barriers impact all families, addressing them is especially important for the families of infants and toddlers: The first three years of a child’s life are a critical time for growth and development. Based on lessons from the distribution of the EITC and expanded CTC, policymakers should target outreach to the groups that have historically faced barriers in accessing cash transfers and other types of means-tested supports, including families with limited English language proficiency and families experiencing deep poverty. For example, Hispanic individuals were less likely to receive the EITC, potentially due to the complexity of the rules around eligibility and the limited availability of outreach and information about the credit in multiple languages. Some EITC-eligible families do not receive the credit because their incomes are below the threshold for filing taxes and they do not realize they are still eligible for the credit; among those who do file taxes, more than one in five eligible taxpayers do not receive the credit, often because they are not aware of it. Another way to improve uptake of cash transfer programs is to implement multiple platforms for accessing the benefit, such as the non-filer’s portal developed for the expanded CTC. Policies can also allow for multiple methods of benefit receipt (e.g., debit cards, checks, automatic deposits) that consider the needs of unbanked or underbanked families.

Support enrollment in cash transfer programs for families of infants and toddlers by enacting inclusive eligibility requirements.

Inclusive eligibility requirements ensure that families of infants and toddlers who need support the most can benefit from cash transfers. Policymakers should ensure that eligibility requirements do not exclude families that would otherwise stand to benefit from a cash transfer program. For example, instituting a minimum earning requirement can limit access to cash transfers for families who earn the least. Similarly, linking eligibility to a work requirement excludes children with parents who cannot work or face significant barriers to work; further, as mentioned above, despite concerns about unconditional cash transfers being a work disincentive, real world data indicate that cash transfer programs have little to no impact on labor force participation. Ensuring that families can enroll with an individual taxpayer identification number (ITIN) instead of requiring a Social Security number (SSN) would allow additional infants and toddlers—the vast majority (94%) of whom are U.S. citizens—to benefit from cash transfers. For example, to be eligible for the federal EITC, a SSN is required not only for each child but for all family members. As a result, citizen children with even just one parent who lacks a SSN are denied access to this important support, even if that parent works and pays taxes with an ITIN. States, however, are not required to limit their own state EITC to taxpayers with SSNs; currently, seven states have expanded their state-level EITCs to include families who file taxes using ITINs. Allowing families without SSNs to access the benefit could reduce the number of children living in poverty by millions, especially for Hispanic and immigrant families. Society will benefit most when policies ensure the healthy development of all infants and toddlers.

Increase the value of cash transfers for the families of infants and toddlers.

Families of infants and toddlers have specific needs that may require a higher level of support, including more generous cash transfer benefit levels. Parents of young children tend to have lower incomes than the parents of older children. The earnings of mothers and other birthing people typically drop following the birth of a child, and child care is more expensive for infants and toddlers. Moreover, poverty reduction is particularly important during children’s infant and toddler years, when poverty’s effects on development have been found to be especially detrimental. Policymakers should allow for increased cash transfer values to families with young children because these families need additional funding, and increased cash transfer values are associated with increases in positive outcomes. For example, while it did not offer additional funding for the parents of infants and toddlers, the expanded 2021 federal CTC accounted for the needs of families with young children by offering additional funding for children under age 6.

Incorporate cash transfers into comprehensive infant and toddler poverty reduction strategies that also include in-kind support.

Policymakers should implement cash transfer programs as a supplement to existing social safety net programs like the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and housing subsidies. At present, most cash transfer programs like the EITC and expanded CTC are, alone, not sufficient to meet the full needs of families with infants and toddlers. Instead, they allow  families the flexibility to meet needs that are unsupported by other parts of the social safety net. Policymakers should consider cash transfer programs to be one of several important tools in the poverty reduction toolbox and implement them as part of a comprehensive approach to poverty reduction. Furthermore, the impact of poverty reduction strategies such as cash transfers can be strengthened when used in combination with other strategies to lift families out of poverty. In order to effectively combine policy reduction strategies, policymakers should also ensure that, when implementing cash transfer programs, cash transfer benefits do not affect families’ eligibility for other benefits.

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Acknowledgments

This brief was a team effort. We would like to thank Kristen Harper, Renee Ryberg, Jack Fojut, Beth Jordan, Porsche Boddicker-Young, Brent Franklin, Jody Franklin, and Priya Koushik for their thoughtful contributions. We would also like to thank Kim Keating and Patricia Cole of ZERO TO THREE and the State of Babies Yearbook team.

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Footnotes

[i] Kelley, C., Ryberg, R., Maxfield, E. & Ekyalongo, Y. (Unpublished). Authors’ original calculations based on 2016-2019 National Survey of Children’s Health (NSCH) Stata Constructed Dataset.

[ii] Kelley, C., Ryberg, R., Maxfield, E. & Ekyalongo, Y. (Unpublished). Authors’ original calculations based on the 2019 National Immunization Survey-Child data.

[iii] Kelley, C., Ryberg, R., Maxfield, E. & Ekyalongo, Y. (Unpublished). Authors’ original calculations based on the 2018-2020 Current Population Survey data.

[iv] Kelley, C., Ryberg, R., Maxfield, E. & Ekyalongo, Y. (Unpublished). Authors’ original calculations based on the Current Population Survey 2020 data.