The first government-led test of a basic income is underway in Stockton, California.

Tomas Vargas Jr. is among a pool of 125 recipients of a $500 a month cash transfer funded by the city.

The stipend comes with no strings attached: Vargas is spending his $500 a month investing in his kids' education -- and his family's future.

Groceries, electricity bills, tuition and kids' tutoring fees: These are some of the recurring costs that Stockton, California, resident Tomas Vargas Jr. can now afford thanks to the $500 per month he's receiving from the local government.

Vargas Jr., a participant in the Stockton Economic Empowerment Demonstration, or SEED, program, is among the 125 local residents who were randomly selected to partake in the country's first government-led experiment in guaranteed basic income.

"I was surprised, then shocked, and now I am grateful," Vargas Jr., 35, told CBS News of his inclusion in the pilot program.

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He said his family and close friends know about the stipend, which comes with no strings attached, but some others think it's too good to be true. "It's not a secret. My friends and family know, but some people don't believe it," he said.

The nitty-gritty

The demonstration was spearheaded by the Economic Security Project, a network focused on basic income in the U.S., in concert with Stockton Mayor Michael Tubbs, who envisioned using the stipend as a way to level the economic playing field.

The privately-funded program made the first of 18 disbursements in February. Recipients had to be adults living in a Stockton neighborhood where the median income was at or below the city median of $46,033 a year. It used a randomized selection process to ensure fairness, and recipients have, as promised, received $500 a month since February through a prepaid debit card, to spend however they choose.

"Stockton's residents are working incredibly hard, but falling further behind. Our number one goal is to shine a spotlight on the reality that a majority of Americans are struggling to make ends meet. We also want to move forward the conversation about finding a solution to providing an economic floor for everyone," Mayor Tubbs told CBS News of the initiative.

A leg-up for the future

Vargas, who works part-time as a supervisor at a logistics company while he earns a degree in business administration, lives in Stockton with his fiancé and the couple's two children; a six-year-old son and seven-year-old daughter. He also has a 12-year-old son from a previous relationship.

Tomas Vargas Jr., who works part-time at a logistics company, is one of 125 residents of Stockton, California, participating in a test case of "basic income" in action. Vargas gets a $500 per month stipend for 18 months. "Now I am able to take my daughter and son for tutoring so they can be on track in school," he said of the extra funds. Provided by Tomas Vargas Jr.

He doesn't have high-school or college degrees, and said continuing his education would help him work his way up the professional ladder. Nor does he want his kids to face the same impediment, and has made their education one of the family's top priorities -- a decision that is reflected in how he has spent his stipend thus far.

"Now I am able to take my daughter and son for tutoring so they can be on track in school," he said of the extra funds.

He is also using the cash cushion to prepare for a future without free money: After all, disbursements are set to end in August 2020.

Vargas hopes investments in individual retirement plans will prevent his family from being jolted back to where it was before it was selected for SEED. "It gives me an opportunity to sit there and make sure I have a monthly dividend after it ends," he said.

Money can buy a better night's sleep

The no-strings-attached stipend has also allowed Vargas to sleep better at night because he is secure about his family's finances. "On a day-to-day basis I wake up a lot happier because I don't have to be stressed, and because I get more sleep," he said.

Vargas once spent most of his waking hours working, taking on side gigs as a handyman, landscaper and car mechanic just to make ends meet. He now spends some of that time with his family, helping him be a better father, he said.

"It enables me to have more family time to spend learning what my kids did at school, or reading books with them at night and going to the park," he said. "I don't have to take time away from my family because I would have to make money for those things I want to give them."

National proposals, from Finland to the U.S.

Studies of other cash transfer programs have linked a universal basic income to improved health and wellness outcomes. Finland gave residents free money and preliminary results show that a cash stipend for 2,000 unemployed citizens increased participants' overall wellbeing and reduced stress levels.

Researcher Stacia Martin-West, who-led the Stockton program's recipient selection process, in February said the experiment was in part designed to study "how if we change income volatility through a guaranteed income, how can you see positive outcomes related to health, anxiety, depression and physical functioning."

The concept of a universal basic income has come into focus in the United States, where Democratic presidential candidate Andrew Yang has proposed what he calls a "Freedom Dividend" -- a $1,000 monthly universal basic income for all American adults over the age of 18, independent of one's work status or income.

Yang's proposal would be funded by a 10 percent value-added tax, or VAT, on the production of goods and services that would generate $800 billion in revenue.

"The most direct and concrete way for the government to improve your life is to send you a check for $1,000 every month and let you spend it in whatever manner will benefit you the most. The government is not capable of a lot of things, but it is capable of sending large numbers of checks to large numbers of people promptly and reliably," Yang says on his website.

Handing cash directly to residents can be the most effective form of public aid. "Families know best what they need," said Dr. Amy Castro Baker, who co-led the recipient selection process for Stockton. "When we come into research, we often have assumptions people don't know how to manage what they have. But what we find is that people are experts on their own lives," she said.

Vargas emphasized how precious the extra cash is to him, noting that he hasn't spent any of it on meals at restaurants or impulse purchases. He's in it for the long haul, and hopes it will become an annuity.

"I am more interested in what I can put it in to get a dividend back instead of going to dinner and buying shoes," he said. "At the end of the 18 months, I want it to end on a good note, not I just spent it on a bunch of nothing."