What Is the Difference Between Cash Transfers & In-Kind Benefits?

What Is the Difference Between Cash Transfers & In-Kind Benefits?

What Is the Difference Between Cash Transfers & In-Kind Benefits?

When it comes to helping those in need, a debate rages about whether cash or in-kind benefits are best. Cash transfers are exactly what they sound like. The recipients receive cash or a pre-loaded credit card which they can use to purchase the goods and services they need. In-kind benefits work differently. In an in-kind arrangement, people receive a specific good or service, such as food or health care. In this instance, the provider dictates what benefit is given rather than the recipient. There are pros and cons to both arrangements.

Pros of Cash Transfers

The primary benefit of cash transfers is their efficiency. Cash transfers are easy to complete. The donor simply transfers funds through a financial institution or electronically adds money to a debit or credit card account. This ease also makes cash transfers inexpensive. If, for instance, a government agency distributes food to the hungry, it must bear the cost of the food as well as transportation costs to get it to those who need it. Once the food arrives, a paid staff or volunteers must make themselves available to distribute it. This requires both financial and time investments that cash transfers don't require.

Cash transfers also allow those in need to meet their needs more specifically. Need is personal and varies from one person to the next, and cash transfers offer beneficiaries the freedom to choose how to use their benefits. The theory here is that you know your needs best, and cash lets you fulfill them in the best way for you.

Cons of Cash Transfers

While some view allowing those in need the versatility to purchase whatever they choose as a positive, others disagree. There is, for example, no guarantee that an addict will use cash to pay for rehab rather than simply buying more drugs. This is why some people prefer to give a homeless person a sandwich rather than cash.

Cash transfers are also at an increased risk of theft. Corrupt governments and volunteers may take some of the cash rather than giving it to the intended recipients. Cash transfers also pose a convenience issue. In some instances, cash recipients may not have access to a bank or other secure depot to get their cash. It's possible to bring the cash to those who need it, but transporting money is risky. Cash transfers sometimes drive prices up by trying to satisfy a demand without increasing the supply. Cash transfers also prove useless in areas devastated by natural disasters or war, where markets are in disarray or destroyed completely.

Pros of In-Kind Benefits

In-kind benefits allow governments and donors much more control over what types of benefits they give. An individual or organization may choose to provide food, shelter, medical assistance, tax preparation help or any number of services and can do so knowing that recipients got exactly the type of help the donor meant to give. In-kind services are also adept at meeting a need or demand by increasing the supply without causing price increases. In fact, a 2017 study of in-kind transfers found that they decreased prices in a given community by 4 percent.

Cons of In-Kind Benefits

Logistical issues create one of the biggest negatives for in-kind benefits. Delivering tangible goods requires paying for the goods themselves (except in the case of donations) and then paying to transport them. Goods also require storage while awaiting distribution and in some cases, such as food or medicine, may spoil or expire before distribution.

In-kind benefits also place limits on recipients. While assistance providers see controlling benefits as a positive, recipients often disagree. A family in need, for example, may choose to forgo purchasing food and instead opt to buy medicine for a sick child. Cash transfers allow for these types of decisions, but in-kind benefits do not. Cash transfers also allow a family to choose what foods they buy, making it easier to work around allergies or special dietary needs. A recipient who uses cash in a way other than the giver intended isn't necessarily making a bad choice.

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About the Author

Michelle earned her accounting degree summa cum laude and has extensive experience in business management and accounting. Entrepreneurship is in her blood, and her work focuses on helping small businesses successfully compete in a big market. Michelle also knows the value of a dollar and enjoys helping readers understand how best to maximize their money and enjoy a healthy financial life. Her work appears Chron's small business site. She has also worked on small business blogs for a national insurance chain.