Spotlight on Child Tax Credit: Transforming the Lives of Families
From July through December 2021, the American Rescue Plan delivered a monthly Child Tax Credit payment worth up to $250 per child aged 6 to 17 and $300 per child under 6 to almost all families with children. The expansion also made children in families with low and moderate incomes, previously excluded from the full credit, eligible for the maximum credit for the first time.
The Child Tax Credit expansion provided a natural experiment of how a monthly infusion of cash would affect people’s spending and overall financial health. We interviewed 18 families in New York City multiple times over the six months to see how they incorporated the monthly payments into their household budgets. Similar to other studies, we found that most families used the expanded Child Tax Credit to cover basic needs like food, housing, and child care, while others paid down credit card debt and saved to safeguard against future economic shocks. Virtually all of the parents interviewed used the Child Tax Credit for child-related expenses or enhancements—common uses included children’s clothing, educational supports, resources, and extracurricular activities.
Our findings reveal that parents viewed the expanded Child Tax Credit as an opportunity to enhance their children’s lives, prevent hardship, stabilize their budgets, and save for the future. Parents carefully calibrated how to use the monthly payments to make the most difference for their families. The infusion of flexible cash also enhanced parent’s financial management skills as they decided how best to use it. As the monthly payments could help cover child care needs and other needed supports, it proved beneficial to working parents. The monthly payments also made a real difference for people living on the margins as they rarely have “extra” money to spend. However, all these gains were temporary, as parents have since reported increases in hardship following the expiration of the monthly Child Tax Credit payments after December 2021.
The Poverty Tracker is a longitudinal study of the dynamics of poverty and disadvantage in New York City.
It is a joint project of Robin Hood and Columbia University.