Michelle Singletary:

There are just three child tax credit payments left to distribute this year, but there is already growing evidence that the plan to help lift families out of poverty is working. Families are building up much-needed emergency funds, digging out of debt and setting aside money for college. This makes a strong case for Congress to prioritize making the payments permanent.

The American Rescue Plan expanded the child tax credit for the 2021 tax year to a total of $3,600 for children 5 and younger and $3,000 for those 6 through 17. Starting in July, parents of children 5 and under began receiving up to $300 a month per child. For parents of children ages 6 through 17, the monthly electronic deposit or check could be up to $250 per child.

The credit itself isn’t new. It was created in 1997 and has always been meant to help struggling families. What’s different for 2021 is a significant increase from the pre-pandemic maximum of $2,000 per child under 17. Temporarily, for one year, the IRS is distributing an advance payment on a monthly basis instead of households having to wait to claim the credit when they file their tax return.

With just half of the payments distributed so far, we know that the money is helping millions of families. Even after just one payment, the child poverty rate fell to 11.9% in July, down from 15.8% in June, according to a briefing paper from the Center on Poverty and Social Policy at Columbia University.

In addition to lifting families just above the poverty level, the payments could also give people a chance to get a better financial footing for the future, according to a new study by the Social Policy Institute at Washington University in St. Louis. (You can find the entire report, “Employment, Financial and Well-being Effects of the 2021 Expanded Child Tax Credit,” at the institute’s website, at wapo.st/childtaxcredit.)

“We know that families with emergency savings have lower rates of hardship, lower housing volatility, higher food security, all of which are important for children’s development over the long term and their economic success,” said Stephen Roll, assistant professor of research at the Social Policy Institute and one of the co-authors of the study.

If the expanded child tax credit isn’t extended, qualified families will go back to claiming the credit when they file their federal tax returns. While they wait for that yearly influx of cash – and at a lower amount under the regular rules – they often take on expensive debt to make ends meet.

“When faced with a financial emergency or when income falls short of usual expenses, households typically turn to credit,” the Social Policy Institute study points out. “For households with subprime credit scores, credit options may be limited to high-cost options such as payday loans.”

Payday loans are marketed to people with cash-flow problems. Lenders advertise these relatively small-dollar loans as a saving grace for people living paycheck to paycheck. Short on cash, they borrow using their next paycheck as collateral.

Here’s what happens, however, to a lot of folks. By the next payday, many borrowers can’t pay off the loan, which then leads them into a cycle of debt. The fees, when annualized, can equate to a triple-digit interest rate.

If families had a reliable stream of cash in the form of advance child tax credit payments, they might avoid getting into such expensive debt.

The goal should be to “lessen families’ risk for material hardship,” according to the Social Policy Institute study. “… This is important because hardship is associated with a host of adverse outcomes related to other policy objectives, such as the increased risk for child maltreatment, child behavior problems, and intimate partner violence.”

A blog post from the Brookings Institution, based on the Social Policy Institute study, also argues the enlarged payments, delivered on a monthly basis, could have an even greater impact on pushing families up the economic ladder.

When asked how they would use the child tax credit payments, 75% of parents reported they would put the money in an emergency fund. Let’s stop right here.

Living paycheck to paycheck creates an extreme amount of financial stress for families, frequently resulting in never being able to get ahead. Being able to weather a financial setback such as a major – or even minor – car repair can be the difference between someone keeping a job or being out of work.

Families also indicated they would use the child tax credit payments to move to a better place or make home improvements. Others said they would get a tutor for their child or start a college fund.

For those who may complain about the cost of expanding the child tax credit, think about this, said Roll, who was also a co-author on the Brookings Institution blog post. Recent research from the Center on Poverty and Social Policy found that for every dollar we invest in the child tax credit, society gets $8 back in terms of higher future wages for the children being helped.

“It’s one of these areas where investing in children in this way is almost always going to pay dividends down the road,” Roll said.

Short-term child tax credit payments put food on families’ tables, but the goal shouldn’t stop at the bare necessities.

As Roll points out, having some slack in their budgets gives families some financial freedom to think long term.

Allowing families to build an emergency fund, avoid an eviction, improve their living conditions and send their children to college with less debt are all worthy outcomes of the expanded child tax credit.

Extend this benefit beyond this year and we have the potential to address a lot of other problems that keep so many families living paycheck to paycheck. Lift them up, and we all benefit.