Giving people money helped less than I thought it would
theargumentmag.com62 points by tekla 2 days ago
62 points by tekla 2 days ago
> Homeless people, new mothers and low-income Americans all over the country received thousands of dollars. And it's practically invisible in the data. On so many important metrics, these people are statistically indistinguishable from those who did not receive this aid.
> I cannot stress how shocking I find this and I want to be clear that this is not “we got some weak counterevidence.”
I don't think this is surprising when considering personal experience with people, at least not for me.
I know people with various degrees of success in their lives. For instance, you meet someone who is chronically broke. At first, you empathize and see them as more or less a victim of misfortune. Unseen car repair bills, job losses, etc. But if its someone you follow over years and get to know, you begin to realize a lot of their problems are self inflicted. For instance, they may get a new job with a big pay raise. But they just adjust their spending up. Some windfall that could turn things around becomes a vacation. And so on.
The same is true with other personal problems. Like the perpetually single person, who upon further examination, doesn't do anything to help their chances. Or the overweight person with a thyroid problem, that really just over indulges.
Helping people we're close to and love is hard enough. I can't imagine just solving some strangers problems by writing them a check
The problem is that cash windfalls don't build wealth. You need consistent income to do much of anything in this world that matters that can be traced, tracked, expressed in credit reports and used to back loans for serious purchases like cars and homes.
If you simply gave young people $100k - which is a number nobody is seriously throwing around - what do you think they would materially gain from it? Very little. Their ability to purchase a home is still income-based and far more than a $100k windfall in many parts of the US can sustain for much time at all and everything else is just a slow bleed.
> what do you think [young people] would materially gain from [$100k]? Very little.
Little? It would remove most of the obstacles in their life: Move away from shitty parents or neighborhoods. Allow Finish their studies without having to hold a job at the same time. Allow a decent job search. Rent near work. Become the foundation for long term investing. Have a decent minimal-breakdowns car if useful where they live/work. Have a safety reserve in case shit happens. After a little time building a credit record, become the down payment for their home (if that's worthwhile on their trajectory), etc, etc.
I would argue though that $100k may not by itself achieve much if - in general - lack of good example, lack of good counsel, presence of terrible "friends", mental illness, etc.
In spite of some views on HN, "normal job" is still the way to a comfortable life for most.
> ...what do you think they would materially gain from it?
$100K at age 20 can become $1.6M by age 60, per the rule of 72, if invested in a diversified stock index with 7% total return. At age 60, the 4% safe-withdrawal rule says that $1.6M might provide $64K/year indefinitely.
So, they could gain a hell of a lot from $100K when young. The trick is saving/investing/time.
1.6m in 40 years probably won’t move the needle much more than 100k does today. Besides that, we’re not trying to solve peoples distant retirements we’re trying to solve peoples lives today , or that’s how I interpret the article
100K at 7% (market rate adjusted for inflation) is 1.6M after 40 years, so that would be 1.6M in today's buying power. Pretty good by the vast majority of peoples' standards.
What happens to stock market when everyone is given 100k to invest? The inflation adjustment is likely understated as you’re basing on historical factors and this is large macro shock to the system that needs to be adjusted for as well.
I also still don’t think this helps most people during the bulk of their lives. Most people in this cohort don’t save now, having knowledge of a more secure retirement wouldn’t change much for them. It’s not like they can turn off 401k contributions and have extra pocket money today.
This probably seems very relevant to you if you're elderly and not so relevant if you don't have a home.
Cash windfalls can absolutely build wealth.
Think of it another way, I hear that big cash expenses can destroy wealth. For instance, if you have no cash reserves, that means you may rely on pay day lenders. You can't afford a Costco membership. You don't have a car so you're limited on where you can work and shop. You cannot afford some vocational training or some time off to train. There are a lot of things that can save or make you money long term.
Also 100k invested in the market will yield you probably around 7k, which is a lot, especially you don't touch it and let it compound.
Think about what you're saying.
100k invested in the market - untouched - will decay a certain percentage a year in purchasing power due to inflation but will outpace it due to returns.
How many years until that cash windfall changes your life?
The answer is "indefinite" years, especially if you're actually using the funds to do anything, i.e. withdrawing them and preventing compound interest.
In 20 years you might be able to get into a home with the cash if you've absolutely touched not even a penny of it but A. you likely haven't and B. you probably still can't get into a home, 20 years later.
Of course, the number is fake, nobody is handing out 100k.
> 100k invested in the market - untouched - will decay a certain percentage a year in purchasing power due to inflation but will outpace it due to returns.
What's your point? That inflation is a thing? The S&P 500 has delivered an average annual return of 10.33% since 1957, but when adjusted for inflation, the real return drops to 6.47%.
> In 20 years you might be able to get into a home with the cash
Why are you hung up on owning a home? There are 100 other things you could do w/ a windfall with a better return than buying a home. Invest in education is probably one of the more high return things you can do w/ a windfall
https://www.investopedia.com/ask/answers/042415/what-average...
> Cash windfalls can absolutely build wealth.
Yes, but that's facile.
Do they, commonly? No.
> Also 100k invested in the market will yield you probably around 7k, which is a lot, especially you don't touch it and let it compound.
You came so close to getting the point, and then kept walking with your own predetermined idea! "Why don't these single-income, struggling mothers and unemployed homeless people just take this cash and invest it?" is the most privilege-laden, oblivious idea I've heard in a while.
I think the idea behind these types of programs is not to solve all problems or realize all goals of its beneficiaries, but rather to provide some cushion against small financial upsets that would otherwise derail a person living on the edge of insolvency.
It seems like the evidence falsifies this idea, though.
Just based on what I'm reading it's very likely that your idea of how people are railed or de-railed from life success might not comport entirely with reality, i.e. there aren't really small financial problems that people ride the razor's edge to insolvency.
My understanding of financial problems is that they can only be resolved through huge cash infusions (likely about enough to buy a home outright) or through long-term cash infusions (i.e. a guaranteed well-paying job).
We don't have any mechanisms to provide these things to people, the costs of living are too extreme. I can't suggest anything better, I'm just pointing out the issue.
> For instance, you meet someone who is chronically broke. At first, you empathize and see them as more or less a victim of misfortune. Unseen car repair bills, job losses, etc. But if it's someone you follow over years and get to know, you begin to realize a lot of their problems are self inflicted. For instance, they may get a new job with a big pay raise. But they just adjust their spending up. Some windfall that could turn things around becomes a vacation. And so on.
AND, they are enabled and pushed into this mentality by other, also-not-very-financially-savvy people in their lives. When that once in a lifetime $1,000 windfall comes in, everyone around them tells them "Come on, blow it on a vacation! You shouldn't deny yourself a little luxury if it makes you feel good! You can't just eat ramen every day, here's your chance to live a little!" and suddenly they're back where they started, pre-windfall.
1000 dollars for a vacation?
It is stupid to fixate on the specific number $1000.
It's just a placeholder for wharever number makes sense in the clearly expressed context. Either substitute $5000 or $10000, or substitute whatever location or demographic you imagined (since none was specified) for some other location or demographic. You can't start in the US and vacation in Venice for $1000, but you absolutely can vacation somewhere else and/or somehow else.
Or, just pretend they said whatever other number you like, because the specific amount was not material to the point they were expressing.
Covers train tickets and hotel for a week if you don't choose an expensive hotel. For a poor person that is much better than nothing.
I just went on business travel with the lowest possible fare and it was more than $1k. Stayed in a cheap hotel too.
And that included zero activities
I just went on vacation for two weeks, and it cost me about $100 in gas.
Anecdotes are fun!
What is your point? Please add value to the conversation instead of snark
I thought that the point was quite obvious. Are you sure you're not deliberately trying not to see it? Because if so, re-read your own last sentence.
No it’s not obvious. I was pointing out that it’s not cheap to go on vacation. I think you are the one missing the point. Several points up GP says “1000 to go on vacation?”