# What Are Transfer Payments? Definitions, Types, and Examples

![Transfer Payment: A payment of money, usually from the government, for which there are no goods or services exchanged.](https://www.investopedia.com/thmb/vanv6vsfvTgK_6l4IilLyqsiXY0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/transferpayment.asp-final-a9ac07eebc3844129517fcc92b68a95d.png)

*— Investopedia / Julie Bang*

## What Is a Transfer Payment?

Transfer payments are financial distributions primarily from government programs to individuals without requiring a return exchange of goods or services. They encompass various social programs such as welfare and student grants, with Social Security being among the most recognized forms. While aimed at aiding individuals, these payments differ from corporate assistance like [bailouts](https://www.investopedia.com/terms/b/bailout.asp) or subsidies, which aren't typically labeled as transfer payments.

### Key Takeaways

*   Transfer payments are monetary disbursements where no goods or services are exchanged, usually facilitated by the government to support individuals.
*   Social Security and unemployment insurance are common examples of transfer payments in the U.S.
*   Transfer payments are crucial tools for redistributing wealth and stimulating the economy during times of economic downturn.
*   During the Great Depression, policies like Social Security were established to alleviate economic hardships through transfer payments.
*   Direct cash transfers, like those approved by Congress in March 2020, are examples of government responses in economic crises to stabilize the economy.  
    

## How Transfer Payments Impact the Economy

In the U.S., transfer payments usually refer to payments made to individuals by the [federal government](https://www.investopedia.com/terms/f/federal-agencies.asp) through various social programs. These payments are considered a [redistribution of wealth](https://www.investopedia.com/terms/r/robin-hood-effect.asp) from the well-compensated to the poorly compensated. They aim to help people for humanitarian reasons and boost the economy during tough times by increasing spending power.

## Different Forms of Transfer Payments Explained

Social Security, whether for retirement or disability, is one of the most well-known transfer payments. These are considered transfer payments even though most recipients have paid into the system during their working lives. Unemployment benefits are considered transfer payments, too.

There are many other types of transfer payments. They can be made from one person to another or even from an individual to an organization. This includes donations to charities or a simple cash gift from one person to another.

Educational and training subsidies are also types of government transfer payments. This includes support for companies or labor groups offering education or apprenticeship programs.

Transfer payments do not include [subsidies](https://www.investopedia.com/terms/s/subsidy.asp) paid to farmers, manufacturers, and exporters, even though they are a one-way payment from the government.

## The Role of Transfer Payments During Economic Recessions

Transfer payments often increase or start during tough economic times. Social Security, for example, was created by the Roosevelt administration during the Great Depression.

In March 2020, Congress approved $1,200 direct cash payments to most Americans, totaling $250 billion, to help during the economic collapse. Congress also approved $500 billion for U.S. corporate bailouts.

Many countries provide direct cash assistance to people during economic recessions as a way to support those in need and stimulate the economy. According to [Keynesian economics](https://www.investopedia.com/terms/k/keynesianeconomics.asp), there is a "[multiplier effect](https://www.investopedia.com/terms/m/multipliereffect.asp)" to transfer payments, meaning every dollar in payments stimulates a chain reaction that results in more spending than merely the original dollar.

## The Bottom Line

Transfer payments are pivotal components of governmental efforts to redistribute wealth and stimulate economies, particularly in times of financial distress.

These payments, which require no exchange of goods or services, include Social Security and unemployment benefits, among others. Understanding transfer payments is essential for recognizing how government interventions impact economic well-being and personal financial planning.  

> **Article Sources**
>
> 1.  U.S. Congress. "[H.R. 748, CARES Act](https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf)," Pages 55, 190. Accessed Sept. 15, 2021.