Can money solve child poverty?

Child poverty is increasing in Finland, and fiscal constraints suggest cuts affecting families with children also in the coming years. It is therefore important to ask what kind of knowledge decision-makers need to combat child poverty and its intergenerational transmission.

We know that children growing up in poor families, on average, fare worse across many indicators, and as adults they are more likely to be poor themselves. Child poverty is linked to health, educational achievement, and later socioeconomic status.

We also know that Finland’s birth rate is historically low, which makes investing in children all the more important. As child poverty increases, it becomes harder to maintain confidence that the welfare state’s safety nets will hold when they are needed.

Poverty is often intertwined with unemployment and mental health problems

Preventing intergenerational poverty is one of the most productive investments from the perspective of public finances.

Still, one key question remains open: what is the independent effect of income on the well-being of families with children and on the opportunities of children living in poverty?

It is difficult to determine whether poorer outcomes among disadvantaged children are due specifically to a lack of financial resources or to factors that often accompany poverty, such as unemployment, mental health problems, family instability, or other stressors.

Experimental evidence on the effects of income is needed

We need experimental evidence on the effects of income. Therefore, we propose a large-scale randomized experiment in which families with children who have long received social assistance would be granted a substantial increase in benefits.

The increase would be provided to families meeting defined criteria and limited to those permanently residing in Finland. Various services, guidance and support could also be linked to the benefit, but the key is to be able to assess the independent effect of additional income.

The experiment would enable a significant reduction of child poverty among families receiving social assistance and provide an opportunity to evaluate how increased income affects children’s early well-being, health, and later educational pathways.

At the same time, underlying mechanisms would be analysed. Does material deprivation decrease? Is stress alleviated? Do educational outcomes improve? Is trust in societal support strengthened?

Is financial support sufficient on its own, or does it need to be complemented by, for example, parenting skills or social work services?

The experiment requires specific legislation

In Finland, it would be possible to carry out such an experiment at a high standard. Its implementation would require specific experimental legislation.

Such legislation must allow for the selection of a defined target group, temporary changes to benefit levels, and the collection and linkage of data for impact evaluation. It must also ensure equality and legal protection during the experiment.

Finland already has experience with experimental legislation, not only from the basic income experiment but also from the recent two-year pre-school experiment.

The experiment would, for the first time, provide causal evidence of the extent to which money itself affects both the consequences of child poverty and young people’s life choices.

The well-being of children and young people strengthens societal sustainability

Low income in poor families with children can of course be addressed through income transfers. However, we also need convincing evidence on the impacts of reducing child poverty when future governments assess the long-term effects of changes to social security.

As the population ages and pressure on public finances grows, the issue is not only about the everyday lives of individual families. The question is whether targeted financial support can strengthen children’s starting points and equality of opportunity, while also increasing young people’s trust in the future, and thereby the social and economic sustainability of our society.