What happens when people are given $500 a month? A California city experiments with guaranteed income

For Falaviena Palefau, being able to buy her 12-year-old daughter new shoes for her birthday was a present for both of them.

Normally, when the date rolled around, Palefau said she'd deflect her daughter's birthday wishes, telling the girl they could ask her grandparents for money or save up for a while to get it.

But this time was different.

The unemployed mom is one of 125 people getting $500 a month -- no strings attached -- in a privately-funded experimental guaranteed income program in Stockton, California, a city of more than 300,000, where 1-in-4 residents lives in poverty.

Guaranteed income programs, which are similar to universal basic income programs such as the one espoused by Democratic presidential candidate Andrew Yang but limited in scope, are seen as a potential solution to addressing economic inequality and injustice.

"Universal basic income is an income support mechanism typically intended to reach all (or a very large portion of the population) with no (or minimal) conditions," according to a scholarly article on the International Monetary Fund's website.

The idea is that by giving money to people who need it, they'll be able spend it and improve their lives in the moment in situations that may not be covered by traditional benefit programs.

"Though the existing benefits systems target people’s most essential needs, unconditional cash meets people’s most urgent needs," the discussion paper on the Stockton Economic Empowerment Demonstration says. "Sometimes people require more than food, housing, and medical insurance – they need a new car battery to get to work the next day, or they need cash to pay an unanticipated bill that might otherwise trigger a downward spiral."

For Palefau, 30, her priorities were utility bills and debts she'd accrued. Another was getting her driver's license, something she kept "putting off to the side because there's more important things."

She also noticed that the guaranteed income, dispensed via ATM card halfway through the month, really helped at the end of the month, when her food stamps often ran out and she and her two children might have to visit a local food bank.

"Being able to provide for my kids ... for me, that's a really big deal," Palefau told ABC News.

So were her daughter's shoes.

"She asked to get a pair of shoes that she wanted for some time now," Palefau said, referring to her daughter. "It felt so good to give her the money and go get it."

Stacia Martin-West, an assistant professor in the College of Social Work at the University of Tennessee, is one of the co-principal investigators involved in the Stockton program. She said most people were using the money for food and bills.

Five months into the program, which began in February, the data showed that food -- about 40% of the total -- was the biggest expenditure. Next was sales and merchandise at 24%, though Martin-West noted that some of that figure probably includes food spending since Walmart is one of the area's largest food stores. Rounding out the top three spending areas was utility bills, at 11%.

"A lot of folks think that they know how lower- and moderate-income people spend money," Martin-West said, but this data shows that they "make smart and rational decisions like we all do."

Amy Castro Baker, Martin-West's co-principal investigator and an assistant professor at the University of Pennsylvania's School of Social Policy and Practice, said social researchers have long known that biases against the spending habits of lower income individuals are unjustified.

"People who are living on the margins of the economy tend to be the savviest budgeters because they have to stretch their money the farthest," Castro Baker told ABC News.

Recipients for the Stockton experiment were randomly chosen from a neighborhood where the median income was at or below the city's median of $46,033.

The concept of a universal basic income was thrust into the national conversation during the course of the Democratic primaries as Yang made it a centerpiece of his campaign.

His program -- the Freedom Dividend -- would pay all Americans over the age of 18 $1,000 a month "no questions asked." Yang says the program would be funded by "consolidating some welfare programs and implementing a Value Added Tax of 10 percent" on the production of goods and services. Yang is paying 10 families and three individuals $1,000 per month for a year as part of a case study.

"I think that Andrew has absolutely vaulted this to a much bigger platform than it had before," said Annie Lowrey, a journalist and the author of the book "Give People Money: How a Universal Basic Income Would End Poverty, Revolutionize Work, and Remake the World."

Opponents of UBI or guaranteed income programs often cite cost and efficiency, arguing that those who are not in the lowest subset of earners would not need the subsidy, according to a scholarly article published on the International Monetary Fund’s website.

SEED's website counters that the payments as “a hand up, rather than a hand out.” "SEED seeks to empower its recipients financially and to prove to supporters and skeptics alike that poverty results from a lack of cash, not character," the group's discussion paper says.

Support for universal basic income varies among countries.

A recent Gallup-Northeastern University survey found that 43% of Americans support a universal basic income program, though that pales in comparison to the 75% of Canadian adults and 77% of adults in the United Kingdom who support similar measures. The age group with the highest level of support in the U.S. was respondents between the ages of 18 and 29 years old.

"Gaps in support for UBI among the three countries surveyed may be due to the tradition of more robust social safety nets in the U.K. and Canada than in the U.S.," the survey said.

Lowrey said that while she "would be surprised" if the U.S. ever adopted "a true" UBI, which would mean "giving literally everybody cash unconditionally and permanently," she said that more politicians and economists are discussing "more cash-based policies" to address economic inequalities.

She pointed to proposals like Sen. Kamala Harris' LIFT the Middle Class Act, a tax credit to middle-class and working families, or suggestions to eliminate work requirements tied to the Earned Income Tax Credit as examples of policies that are similar philosophically to guaranteed income.

Lowrey told ABC News it seems "really likely" that "UBI-like" programs will be "part of the policy conversation going forward."

"What you are seeing in Stockton is that this model that seems really radical is in fact quite viable and maybe even reasonable to do," Lowrey said.

Stockton mayor Michael Tubbs said his residents have been extremely supportive of the program.

He added that "every day we get emails, tweets, Instagram messages" from people asking to be included in the program. "It's just heartbreaking."

Tubbs said he's been advising city officials in Chicago and Newark, as part of their respective basic income task forces, and believes programs offering guaranteed income would work elsewhere -- if governments step in to support them.

"Philanthropy can't be policy," he told ABC News, adding that for it to work at scale, "it has to be done at a statewide or national level."

The Stockton program is slated for 18 months, ending in July 2020.

Palefau said she hopes she'll be able to use excess money from future months to make restitution payments in a decade-old incident, and to help her get closer to her goal of either working at, or running her own daycare.

In the meantime, she said she's enjoying being able to buy food and pay bills with less worry.

"It was stressful" before the program started, she said. "It's been a lot of weight off my shoulders."