In-Kind Transfers

Many people know someone or themselves receive or have received government assistance. There are many forms of government assistance, such as unemployment benefits, housing assistance, food stamps, or free and reduced school lunches. Some of this assistance is made available in the form of cash given to the recipient to use as they see fit, while others are provided to the recipient as goods or services. The latter are called in-kind transfers and are what this explanation is all about. Let's learn more about in-kind transfers together!

In-kind Transfers Definition

The common definition of in-kind transfers is goods or services that are directly provided to the poor rather than given to them as cash payments. In-kind transfers are used by a country's government to provide its citizens with welfare support. A government that provides its citizens with a housing voucher or nutrition assistance is providing them with in-kind transfers since no cash is being handed out.

In-kind transfers provide people with a manner of supplemental income since they deliver the goods and services that these people would be spending their income on. A government may choose to use these types of transfers because they can regulate what the recipient spends their assistance on.

There are different levels of in-kind transfers. Some, like food stamps and housing vouchers, give the recipient a degree of control over what they spend it on as long as it fulfills the government guidelines. Nutrition programs, for example, can be applied to various types of food and drink, but they cannot be used to purchase alcohol. Other in-kind transfers are limited to the service they provide, such as Medicare. Medicare is provided by the government, and the recipient has very little say over their treatment options.

In-kind Transfers Poverty

In-kind transfers from the government to its citizens are often used to alleviate poverty by elevating people's standard of living. However, there are those who oppose in-kind transfers and favor cash transfers for those experiencing poverty or unemployment. In-kind transfers imply that the government knows what the recipient will need most to improve their living situations and assumes that most poor people's needs are the same. In-kind transfers also tend to take a while to reach their beneficiaries. They usually require people to apply for each individual program because they are separate entities. Then, they have to be approved by the organization to receive the benefits. This can be a very tedious process that can take anywhere from a few days to weeks.

Providing in-kind transfers rather than cash gives the government more say over how tax money is spent on welfare. However, the other side of that argument is that benefit recipients would know best what they need to improve their standard of living. A concern with providing the poorer population with cash is that it is spent inappropriately. Studies have found that diseases like alcohol and drug abuse are more common among those with a lower socioeconomic status, meaning that poorer people tend to struggle more with these issues.¹ Now, it is not established that addictions result from low socioeconomic status, only that they are more prevalent among lower socioeconomic groups.¹ Hence the prejudice that poor people needing government help are going to spend their cash transfers on those activities rather than on their actual needs.

Fig. 1 - In-kind Transfer

In-kind Transfers Welfare

In-kind transfers are used for distributing welfare. A welfare policy is a government policy that a nation establishes to make sure its citizen's basic needs are met in terms of food, housing, income, etc. In-kind transfers are a go-to method for a government that is taking action to increase or maintain its people's standard of living.

Some in-kind transfers that are a part of the welfare system are the United States Medicare, Medicaid, and Supplemental Nutrition Assistance Program (SNAP). These programs are meant to provide the recipient with what they need the most in terms of medical care and nutrition. These types of in-kind transfers are typically conditional in-kind transfers. This means that they provide benefits to the recipient as long as they fulfill the conditions stipulated to qualify, and the funds must be spent on eligible items.

Additionally, because in-kind transfers either are not money being directly provided to the recipient or the money that is provided, like in the case of SNAP, has restrictions associated with it, they are considered non-monetary and do not count towards a person or family's income. This means that when a country is measuring its poverty or inequality rate, it does not take into account the benefits that the people receive. So, even though in-kind transfers do not increase income, they do free up disposable income for the family to use on other goods that may not be provided by benefits.

In-kind Transfer vs Cash Transfer

With cash transfers, the recipient is more flexible since they have a greater say over what they spend their money on. Incidentally, this is also the reason taxpayers and policymakers sometimes oppose cash transfers. An example of a cash transfer is the United States Social Security Insurance which provides the elderly, disabled, and otherwise qualified people with a monthly income. Another example of a cash transfer is unemployment benefits which pay you a portion of the income you were earning when employed.

The common concern with cash transfers is that the funds will be spent inappropriately. Simply providing someone with cash is not always the best method to ensure that their basic needs of food, shelter, and clothing are met. This is why in-kind transfers are the more politically favored method. In-kind transfers can guarantee that those basic needs are met since they either directly provide the goods like food banks do or give vouchers for specific items like food stamps do. An in-kind transfer can be distributed in the form of a debit card with a cash balance available on it, but the type of goods that can be purchased with this money is regulated, which is why cash is not an in-kind transfer.

An argument in favor of cash transfers is that not everyone's needs and preferences are the same. With in-kind transfers, the goods and services that are offered to people are not tailored to their individual needs. While one family may need help buying food because they live in a city apartment, a family with a produce garden and lives rurally may be better helped with a fuel or transportation voucher. Now, while both those vouchers exist, it takes time and effort to apply to the correct ones that best meet individual needs, and simply providing cash could expedite the process.

In-kind Transfers Examples

Some examples of in-kind transfers are government programs like Medicare, Medicaid, and SNAP.

Medicare is a government-established and funded medical insurance program for people with disabilities and those older than 65. Medicaid is also an insurance program, but it caters to low-income members of society. Medicare and Medicaid are considered in-kind transfers or benefits because they directly provide a service to those who qualify rather than give them money to pay for health insurance.

Another example of an in-kind transfer is the US's SNAP program. SNAP provides individuals and families who qualify with an electronic benefits transfer card where the person's allotted funds are automatically uploaded each month once they have been successfully enrolled in the program. SNAP replaced the US's food stamps to fight the stigma that comes with being on a government assistance program.²

Not all in-kind transfers are government funded, though. Non-profit organizations like Feeding America establish food banks, soup kitchens, and shelters all over the US, and in-kind transfers in the form of food to the people. The Salvation Army is a religion-based non-profit that provides free clothing, food, and shelter to the homeless and the unemployed as part of its mission to meet human needs without discrimination. ³ These types of non-profit organizations provide in-kind transfers to people in need by supplying them directly with the basic goods and services that are required to survive.