The complementarity between cash transfers and financial literacy for child growth

A large body of international research focuses on the corrective influence that cash transfers can have on the health of chronically malnourished children. However, the evidence also points to the heterogeneity of the impact of these cash grants within the recipient population. Identifying pre-existing household conditions that are correlated with grant efficacy can have important policy consequences. In this paper, we examine one such a condition, namely the financial literacy of the caregiver of the child. We make use of the fourth and fifth waves of the South African National Income Dynamics Study (NIDS) data. We estimate the relationship between height and growth in a sample of children aged 0 to 7 years and the child support grant. We find that eligible children who have financially literate caregivers receiving the cash transfer on their behalf have higher growth trajectories over time, compared to children with financially illiterate caregivers. We however find no such effect for child height. Our results do not preclude a pure income effect for cash transfers: children who become CSG beneficiaries gain in height immediately, even without financially literate caregivers. Arguably, the combination of cash transfers and financial literacy have long-run benefits for children over and above an income effect. Although we are unable to identify the specific mechanisms through which financial literacy may impact child growth, we discuss some potential channels. The results have important policy implications regarding potential ways in which to improve the efficacy of the child support grant in South Africa.