Pre-pandemic, an estimated 30 million Americans lived in poverty1,2, half of whom were in deep poverty. The absolute economic mobility of children born in the 1980s has fallen by 50%3, with over 11 million US children living in poverty. Transient policies such as the Child Tax Credit (CTC) expansion, an unconditional recurring cash transfer, reduced child poverty per the Supplemental Poverty Measure from 9.7% in 2020 to 5.2% in 2021 (ref. 4). In response, we provide an overview of poverty and mental health and articulate a theoretical framework from the USA that may explain these sequelae. We also review emergent evidence of cash transfers, known as universal basic income, guaranteed income or (un)conditional cash, on well-being and as a mental ill-health prevention strategy.

Poverty and rates of mental ill-health

There are strong bi-directional links between poverty and mental ill-health1,5. Many common mental disorders (depression and anxiety) are “distributed according to a gradient of economic disadvantage across society”6. Causal relationships exist between mental illness and negative income shocks, economic stress and poverty, with correlations between income and depression and anxiety7.

In the USA, disproportionate rates of suicide and death that are attributable to substance use occur among those with lower incomes who are systematically excluded from upward economic mobility8. Suicide rates rose 30% from 2000 to 2018, and after a brief drop in 2019 and 2020, continued to rise in 2021 (ref. 9). White working-class men and women without college diplomas are overrepresented among ‘deaths of despair’, which causes unprecedented loss in life expectancy10. The pandemic accelerated these trends as unpredictable income loss prompted increased incidence of depression, suicidal ideation and anxiety, particularly among those without college degrees, people of color and adolescents.

Mental illnesses are heterogeneous, and poverty may impact illnesses differentially5. Poverty and income volatility represent some of many possible social determinants of mental ill-health, but these stressors are often missing from conceptual frameworks. Importantly, Lund et al.’s framework that integrates financial and non-financial social determinants of mental health identifies structural targets for intervention such as recession, inequality and poor macroeconomic policies that create debt, unemployment and material hardship1. Others likewise document relationships between depression, socioeconomic status and multiple laboratory/physical health conditions, which highlights the fact that interventions that target biology while neglecting issues of socioeconomics will likely curtail impact11.

Framework for a scarcity mindset

One possible mechanism that underlies the mental well-being effects of low income and income volatility may include a scarcity mindset that generates negative outcomes caused by unpredictability and loss of agency. Income volatility, or month over month change in household income, impacts lower income, less educated and minoritized households inequitably12. And low income can generate a scarcity mindset whereby most cognitive capacity is necessarily dedicated to preoccupation with money for survival13. Individuals that experience income volatility report a lower internal locus of economic control, which means that they feel less in control of their financial future13. Thus, a person impacted by both poverty and income volatility is often psychologically trapped in the present — hyper-focused on today’s survival, vulnerable to market risk and feeling powerless to alter their financial calculus.

Paradoxically, economic mobility relies on an individual’s capacity for hope when structural conditions would otherwise prompt despair and powerlessness. Hope under economic uncertainty rests on one’s ability to set goals, visualize alternative pathways, and sense of self-determination or agency where one believes they contain the qualities to achieve goals despite unpredictability14. But this does not mean that an individual is responsible for alleviating their economically produced suffering through grit, ambition or willpower. Human connection, positive social institutions and feeling seen by institutions with power over people’s lives also drive the capacity for hope15. Yet, the same economic conditions driving scarcity and eliminating agency also force people into an existence that is governed by lack of time for human connection and occur in a policy context that is constantly delivering the message that people experiencing deprivation are unworthy of trust, agency and decision-making. In other words, structural constraints are forcing people into a state of scarcity that produces poor mental health and eliminates hope while keeping them immersed in a policy environment that functionally eliminates the ingredients necessary for escape. These constraints are not nebulous but represent the bedrock of the US social contract.

Conditional and unconditional programs

Many financial, employment and social interventions have been investigated alongside mental health, but here we focus on cash transfers. Conditional cash transfers have successfully reduced poverty in many low- and middle-income countries16 but have a mixed US record. From the New Deal (1933) to the American Rescue Plan (2021), government programs codified the elimination of self-determination and trust as a condition of receiving benefits when experiencing poverty or unexpected shocks17. While they were intended to stimulate human capital investment, at times they backfired and eroded trust owing to punitive legislation and prejudicial stereotypes that are associated with seeking aid17,18. This is not to say that conditional cash transfer programs cannot work in the USA, but because the cash amount is a much smaller proportion of annual household in the USA (<20%) than in the developing world (200%), the recipient’s perception of the conditionality, non-compliance response and support provided to achieving compliance may play a bigger role in driving success19. Racialized and gendered narratives of shame and blame also plague receipt of conditional cash, which further diminishes their potential for positive outcomes18.

Recurring unconditional cash transfers without strings attached represent a counterweight to social policies that eliminate agency and fiscal policies that produce a scarcity mindset. The mechanism for change rests on recurring payments that smooth income volatility over time versus one-time infusions or short-term cash assistance, which does not lead to positive mental health and financial outcomes19. Popularized in the USA by substantial media attention to the Baby’s First Years study20 and the Stockton experiment, these programs are undergirded by extending trust and agency towards people. Unlike most programs, there are no means tests or restrictions on how one may spend the cash. The infusions are fungible, meet immediate needs and offer the potential for improving mental wellbeing.

Many studies support the benefits of cash transfers on mental health outcomes. A systematic review of programs in the USA and Canada21 suggests that unconditional cash transfers were associated with decreased hospitalizations owing to mental health problems22. Intergenerational improvements in rates of substance use and mental health were observed in Native American children whose caregivers received casino dividends, yet no psychological impacts were detected in the direct recipients23. In this study, the benefits on psychiatric disorders were larger for children who were younger when the payments started21. Another systematic review of 15 reports of unconditional cash transfers in high-income countries24 indicates improvement in mental wellbeing.

Initial results of a randomized controlled trial of unconditional cash in Stockton conducted by two of us (S.W. and A.C.) demonstrated positive mental health outcomes that were attributable to unconditional cash25. The treatment condition received US$500 per month for 2 years with no strings attached. After 12 months of smoothing income volatility, the treatment group experienced decreases in anxiety and depression (measured by the SF-36 and Kessler-10) in parallel to scarcity alleviation. Qualitatively, subjects reported initial feelings of mistrust that later turned to feelings of greater agency, allowing them to visualize alternative pathways.

While outcomes for several new, ongoing, unconditional cash programs in the USA are not yet available, some encouraging news comes from a 2022 report projecting declines in childhood poverty attributable to the CTC expansion during the pandemic, a form of guaranteed income, coupled with the Earned Income Tax Credit and housing subsidies26. When the program ended, childhood poverty rates rose. However, it is important to note that stimulus payments do not produce the same effects — simply because the mechanism of change we argue is most effective is not based on a ‘windfall’, but in the above theory suggesting the need for consistent, unconditional cash.

Overall, research supports the benefits of recurring cash on psychological distress and financial stability, and there appear to be no published harmful effects. In order to avoid social conflicts over who receives assistance, it is essential that cash be accompanied by structural reforms to address societal inequities. The studies referenced support the proposed theoretical model, but there are limitations. This includes lack of a cohesive theory of change, data demonstrating how cash may alter the incidence of specific mental illnesses, and variations in duration, payment cadence and amount making outcomes difficult to reconcile.

US policy solutions

Macro- and micro-economic policy changes to alleviate poverty may impact mental health. In 2020, for an estimated 3.5 million people with serious mental illness living in poverty, the USA spent approximately US$280 billion for treatment27, which provides a benchmark level of investment for consideration.

While we need multipronged solutions to allow poor people to build wealth, we highlight two such solutions. First, a basic income that phases out at a certain income threshold (for example 150% of poverty level costing US$112 billion) to effectively end poverty28. The second involves reinstating the revised CTC, to provide recurring monthly payments to households with children. Expanding eligibility to 90% of US households would eliminate long-standing racial inequities with an estimated 30% reduction in monthly child poverty26. Investments made before the age of 5 lead to better education and neighborhoods that have been proven to enhance wellbeing and health outcomes. Given this, we would do well to heed Mahatma Gandhi’s words that, “there is enough in the world to meet everyone’s need, but not to meet everyone’s greed”.