10 ms·

How MacArthur Geniuses Handle Their Windfalls

70 points by evanb 11y ago

teddyh 11y ago
Most people who randomly get a windfall of money were previously poor. If you’re poor and suddenly get lots of money, you most probably can’t handle it; “#4. Extra Money Has to Be Spent Right Goddamn Now!”: http://www.cracked.com/blog/the-5-stupidest-habits-you-develop-growing-up-poor/ http://www.cracked.com/blog/the-5-stupidest-habits-you-devel... MacArthur winners have two advantages: First, they are probably good at something, and therefore are likely not poor. Secondly, even if they are poor, they are probably very focused on their thing which made them get the prize, and any money goes to their thing, not to themselves, which makes most people a little more rational when deciding things.
- pgbovine 11y ago
  yep, agreed. and also the macarthur isn't nearly as much money as the usual lottery windfalls
- deleted 11y ago
  [deleted]
- notjack 11y ago
  Additionally the MacArthur grants are divided into quarterly payments over five years, so you're not getting 625k all at once, you're getting 20 payments of $31,250, one every three months. That makes it pretty much impossible to blow all of it within half a year.
  - teddyh 11y ago
    People could still get into debt because they know that the money is coming. Look at how many people buy things and assess the price based on the size of the monthly payments instead of the actual total price.
    - eli 11y ago
      You could literally go into debt by using the structured payments as collateral for a loan for something close to the full amount up front.
  - IkmoIkmo 11y ago
    Not really, it makes it less likely sure but far from impossible. For one, a guaranteed cashflow contract is something you can sell to lots of different parties for a discounted lump sum right away. Hell a month ago or so there was an article on HN about a iirc mentally handicapped woman who'd received a legal settlement payout because a company had been negligent in letting her live in housing which was filled with neurotoxins (in the paint iirc), and some guy called her up and swindled her out of a large portion of the money by buying her settlement contract and paying her a ridiculously low discounted value. Anyway it happens all the time, most companies sell or buy B2B with 30-60 day payments, and many companies with cashflow issues will sell those future payments for money today. It's not a loan that you pay back at some point when you get the money, rather you're selling a loan/credit (for instant cash) someone has with you who's contractually obliged to make future payments on that to you. And secondly you can incur lots of debt, or spend money you had saved up, knowing it'll be replenished. Either of the two or a combination could let you blow through the money in half a year, not impossible, although it's unlikely.
- aaron695 11y ago
  > If you’re poor and suddenly get lots of money, you most probably can’t handle it; The last study I saw said this was not true. And it's pretty illogical really. A bit of a Gladwellian story, or worst an urban legend since it's pretty mean. People who are poor/less educated do have trouble with money, yes. But if you give them a big chunk (lotto or smaller) it greatly improves their lives. Well off/educated people generally invest the money better but it's silly to think poor people would blow it or worse, become less well off.
  - kolinko 11y ago
    Do you have a link to that study?
- Udo 11y ago
  I think there is more to it than just not being able to handle it. Two aspects occurred to me: Having a saturation point: some people just keep on spending, way beyond what they can actually get comfort and enjoyment from. When poor people have this personality, they spend their windfall and go broke. When rich people have this personality, they also spend almost all the free-floating cash they have. The difference is just their money keeps growing back. However, when their money source dries up, many rich people do indeed quickly go broke as well. It can take a lot of money to upgrade a life (permanently): for poor people suddenly receiving lots of money, it can seem like all their problems are solved. But upgrading your lifestyle, your family, your social situation can easily swallow up millions of dollars without necessarily "wasting" anything. If you're permanently and hereditarily poor, there is a more profound form of debt than just what you owe to the bank. This debt still needs to be paid, and it can easily be more than the windfall provided.
  - marktangotango 11y ago
    >> there is a more profound form of debt than just what you owe to the bank. This debt still needs to be paid, and it can easily be more than the windfall provided. I have my own thoughts on this, but would love to hear you or others expound upon it.
- spacecowboy_lon 11y ago
  Is this just because there have been some high profile cases in the media like Viv Nicholson the Spend Spend Spend woman There may be many previously poor recipients who haven't blown it all.
- harrumph 11y ago
  >First, they are probably good at something, and therefore are likely not poor. The wider world is not a meritocracy. The United States isn't even remotely a meritocracy. There is a prevailing ideology that depends upon this presumption of meritocracy, but that's all you can say.
dghughes 11y ago
Is grant or award money taxed? I've read stories about people in the US who win a not huge but not small lottery prize of say $1 million don't do so well. By the time they pay all the taxes and get bumped up a tax bracket or two spend a few hundred thousand they probably owe even more. In Canada lottery wins are not taxed but the interest is. But even so many "poor" people and that's a broad term end up blowing it all. I've seen fishermen who made $30,000 a year go work in oil fields and seem to treat $100,000 like it's play money.
- notjack 11y ago
  Note that because of the way tax brackets work, it is not possible for a small increase in income to increase your taxes to the point that it's a net decrease (due to tax brackets anyway). If you're just below the next tax bracket, and you get a ten dollar raise, only those ten dollars are taxed at the higher rate. All of your previous income remains taxed the same as it was before.
  - Tenhundfeld 11y ago
    I wish I could upvote this a thousand times. I don't know where this idea of getting "bumped up a tax bracket" comes from. I occasionally hear it from smart and otherwise informed people. It's easy to dismiss as a wonkish point, but I actually think it's important. Some people think it's unfair for millionaires to be "taxed at a higher rate" when they've "earned their money." I wonder if they would still feel that way if they understood the millionaire is paying the same rate as everybody else for the first $75k, for example. Of course, the truth is the millionaire is probably paying a lower tax rate due to clever accounting and large portion of earnings being subject to capital gains tax instead of income tax. But that's a different topic. Anyway, not trying to make this political. :) I just wish more people understood how tax brackets actually work.
    - Ntrails 11y ago
      >Some people think it's unfair for millionaires to be "taxed at a higher rate" when they've "earned their money." I wonder if they would still feel that way if they understood the millionaire is paying the same rate as everybody else for the first $75k, for example. In the UK at least once you go into the 45% super high earner bracket (150k I think) - you'll start to lose your tax free allowance which means you do actually pay more tax on the sub threshold income. Obviously it's still designed to ensure no one ever goes over 100% marginal tax rate (where you'd actually lose money by earning more).
zaroth 11y ago
What programs are out there like a MacArthur for coders? I know a bit about Google's Summer of Code, but it's not really the same...
- airza 11y ago
  Okay, I don't want to sound like I'm making fun of you, but you're on a website run by a company that gives large amounts of free money away to coders to explore ideas...
  - sooper 11y ago
    Not exactly "free", you have to do something for it and there are strings attached.
  - nmrm2 11y ago
    Comparing MacArthur Genius Grants and similar awards to venture capital isn't particularly apt. YCR or the fellowship might be slightly more comparable, but still pretty off mark. To the parent: MacArthur Genius Grants have been given to computer scientists... IDK about "coder"; ostensibly, that code should be pretty remarkable if you're getting that kind of windfall. And if the code is so remarkable, there's probably some science or engineering behind it that is the actual reason for the award. In other words, by the time code is doing something that is societally significant, there are probably ideas extant in that code that are worth codifying and explaining in something other than a programming language. And probably those ideas/results have impacts that go far beyond a particular implementation.
    - zaroth 11y ago
      I think that there's a lot of "boring" code that could be written which could have a tremendous positive impact for the world. Some of it I think, if it actually saw real adoption, which would collapse the market caps of some fairly big companies.
  - zaroth 11y ago
    I've started companies which have taken (small amounts of) VC funding, and I can tell you definitively it is nothing at all like a MacArthur. Try to close a deal while telling the investor you will treat their investment like a gift, and you will know exactly what I mean. Now granted, YC is starting to do things more MacArthur like, i.e. with their YC Research initiative. In particular the equity grant in YC component is very interesting. Companies are formed to generate a profit, and investment is a direct expectation of that, or more directly, an expectation for a company to grow their market cap irrespective of any actual profit. MacArthur is the abject opposite of that, cash money without expectation.
rokhayakebe 11y ago
People always say winning the jackpot will change their lives, but from what I have seen $50,000 will change a LOT of lives for ever. In Am.Me.Ri.Ca. Give a person $200,000 and that may be just enough that they know they cannot make a mistake. Give them north of $500,000 and now they feel they can spend freely without a worry. Give them north of $1.5M and now they may literally think this money is a bottomless well.
- zaroth 11y ago
  Different scales and different 'changes'. You can give $50,000 to someone who has $10k/yr living expenses and it might change their life. But people with $10k/yr living expenses probably don't typically have the work experience and skill sets of your target demographic. When MacArthur finds someone who meets both criteria, well, that's great and a smaller award might even have more impact. But if you are giving an award to someone with 6-figure salary and 5-figure annual living expenses, no $50,000 isn't going to make as much of a difference in their lives. If you want to seriously free that person from thinking about money for a significant period of time, it better be 7 figures. And anyway, $1.5M is not all that far from a bottomless well (i.e. 5% per year).
  - rokhayakebe 11y ago
    Correct, but remember that even in the US 4 out of 5 people make less than 6 figures yearly (Before tax).
defen 11y ago
Cormac McCarthy used his windfall to research and write the greatest (IMO) novel of the 20th century Blood Meridian, or the Evening Redness in the West
- puranjay 11y ago
  Try as I might, I can't bring myself to love Blood Meridian more than The Road. But I would definitely place it among my top 20 books of the last century. Perhaps even in the top 10
hugh4 11y ago
Why not just simplify it down to MacArthur Fellows are smart, and smart people are smart enough to solve the rather simple problem of not wasting a large windfall?
- mattdw 11y ago
  Because poor people are not stupid. They're often actually pretty damn rational within their constraints. Smarts alone does not equip one to handle a windfall.
  - notjack 11y ago
    This is a very crucial point. The so called "stupid" financial behavior of people in (first world) poverty is anything but, it's a series of carefully calculated and measured responses to extreme inflexibility. Almost all means of establishing long term financial stability involve either a) put away some money now, wait for some time, then receive more money or b) risk losing some money for the chance to gain more money in a way that averages to a net positive over time. Neither of these are possible when you do not have flexibility, you can't afford to put away money when doing so means not eating for a week, and you can't afford to risk money for more money when coming out on the losing end of that deal means becoming homeless. You have to have a completely different approach to managing money when in poverty, and it sticks with you mentally even after escaping to a more stable situation.
    - teddyh 11y ago
      Yes, that was exactly my point.
  - hugh4 11y ago
    If they're smart, why haven't they found a way out of poverty yet? I mean, maybe there's some weird outlying cases, but for the most part poverty is caused by shitty decisions. Stupid people make bad decisions and wind up poor.
    - 11y ago
peterhadlaw 11y ago
My father worked for a MacArthur. That woman was ruthless in her search for perfection. She did so out of love. I just want to come here and say as someone with an immigrant childhood and where my family was doing whatever we could to move up - she made my child self so happy. She personally picked out 3 industrial sized bags of Christmas presents that my dad took home to me. They filled our apartment floor.
Animats 11y ago
The MacArthur awards are amusing if you know who John MacArthur was. He made his money selling mail order life insurance and stalling on paying claims.[1] [1] William Hoffman, "The Stockholder", 1969, ASIN: B001HS4R58.
- peterhadlaw 11y ago
  This is the very reason the foundation was created. The family wanted to give back to the community for his actions - basically forcing him to do so.

70 points by evanb 11y ago

Most people who randomly get a windfall of money were previously poor. If you’re poor and suddenly get lots of money, you most probably can’t handle it; “#4. Extra Money Has to Be Spent Right Goddamn Now!”: http://www.cracked.com/blog/the-5-stupidest-habits-you-develop-growing-up-poor/ http://www.cracked.com/blog/the-5-stupidest-habits-you-devel... MacArthur winners have two advantages: First, they are probably good at something, and therefore are likely not poor. Secondly, even if they are poor, they are probably very focused on their thing which made them get the prize, and any money goes to their thing, not to themselves, which makes most people a little more rational when deciding things.

pgbovine 11y ago
yep, agreed. and also the macarthur isn't nearly as much money as the usual lottery windfalls
deleted 11y ago
[deleted]
notjack 11y ago
Additionally the MacArthur grants are divided into quarterly payments over five years, so you're not getting 625k all at once, you're getting 20 payments of $31,250, one every three months. That makes it pretty much impossible to blow all of it within half a year.
- teddyh 11y ago
  People could still get into debt because they know that the money is coming. Look at how many people buy things and assess the price based on the size of the monthly payments instead of the actual total price.
  - eli 11y ago
    You could literally go into debt by using the structured payments as collateral for a loan for something close to the full amount up front.
- IkmoIkmo 11y ago
  Not really, it makes it less likely sure but far from impossible. For one, a guaranteed cashflow contract is something you can sell to lots of different parties for a discounted lump sum right away. Hell a month ago or so there was an article on HN about a iirc mentally handicapped woman who'd received a legal settlement payout because a company had been negligent in letting her live in housing which was filled with neurotoxins (in the paint iirc), and some guy called her up and swindled her out of a large portion of the money by buying her settlement contract and paying her a ridiculously low discounted value. Anyway it happens all the time, most companies sell or buy B2B with 30-60 day payments, and many companies with cashflow issues will sell those future payments for money today. It's not a loan that you pay back at some point when you get the money, rather you're selling a loan/credit (for instant cash) someone has with you who's contractually obliged to make future payments on that to you. And secondly you can incur lots of debt, or spend money you had saved up, knowing it'll be replenished. Either of the two or a combination could let you blow through the money in half a year, not impossible, although it's unlikely.
aaron695 11y ago
> If you’re poor and suddenly get lots of money, you most probably can’t handle it; The last study I saw said this was not true. And it's pretty illogical really. A bit of a Gladwellian story, or worst an urban legend since it's pretty mean. People who are poor/less educated do have trouble with money, yes. But if you give them a big chunk (lotto or smaller) it greatly improves their lives. Well off/educated people generally invest the money better but it's silly to think poor people would blow it or worse, become less well off.
- kolinko 11y ago
  Do you have a link to that study?
Udo 11y ago
I think there is more to it than just not being able to handle it. Two aspects occurred to me: Having a saturation point: some people just keep on spending, way beyond what they can actually get comfort and enjoyment from. When poor people have this personality, they spend their windfall and go broke. When rich people have this personality, they also spend almost all the free-floating cash they have. The difference is just their money keeps growing back. However, when their money source dries up, many rich people do indeed quickly go broke as well. It can take a lot of money to upgrade a life (permanently): for poor people suddenly receiving lots of money, it can seem like all their problems are solved. But upgrading your lifestyle, your family, your social situation can easily swallow up millions of dollars without necessarily "wasting" anything. If you're permanently and hereditarily poor, there is a more profound form of debt than just what you owe to the bank. This debt still needs to be paid, and it can easily be more than the windfall provided.
- marktangotango 11y ago
  >> there is a more profound form of debt than just what you owe to the bank. This debt still needs to be paid, and it can easily be more than the windfall provided. I have my own thoughts on this, but would love to hear you or others expound upon it.
spacecowboy_lon 11y ago
Is this just because there have been some high profile cases in the media like Viv Nicholson the Spend Spend Spend woman There may be many previously poor recipients who haven't blown it all.
harrumph 11y ago
>First, they are probably good at something, and therefore are likely not poor. The wider world is not a meritocracy. The United States isn't even remotely a meritocracy. There is a prevailing ideology that depends upon this presumption of meritocracy, but that's all you can say.

dghughes 11y ago

Is grant or award money taxed? I've read stories about people in the US who win a not huge but not small lottery prize of say $1 million don't do so well. By the time they pay all the taxes and get bumped up a tax bracket or two spend a few hundred thousand they probably owe even more. In Canada lottery wins are not taxed but the interest is. But even so many "poor" people and that's a broad term end up blowing it all. I've seen fishermen who made $30,000 a year go work in oil fields and seem to treat $100,000 like it's play money.

notjack 11y ago
Note that because of the way tax brackets work, it is not possible for a small increase in income to increase your taxes to the point that it's a net decrease (due to tax brackets anyway). If you're just below the next tax bracket, and you get a ten dollar raise, only those ten dollars are taxed at the higher rate. All of your previous income remains taxed the same as it was before.
- Tenhundfeld 11y ago
  I wish I could upvote this a thousand times. I don't know where this idea of getting "bumped up a tax bracket" comes from. I occasionally hear it from smart and otherwise informed people. It's easy to dismiss as a wonkish point, but I actually think it's important. Some people think it's unfair for millionaires to be "taxed at a higher rate" when they've "earned their money." I wonder if they would still feel that way if they understood the millionaire is paying the same rate as everybody else for the first $75k, for example. Of course, the truth is the millionaire is probably paying a lower tax rate due to clever accounting and large portion of earnings being subject to capital gains tax instead of income tax. But that's a different topic. Anyway, not trying to make this political. :) I just wish more people understood how tax brackets actually work.
  - Ntrails 11y ago
    >Some people think it's unfair for millionaires to be "taxed at a higher rate" when they've "earned their money." I wonder if they would still feel that way if they understood the millionaire is paying the same rate as everybody else for the first $75k, for example. In the UK at least once you go into the 45% super high earner bracket (150k I think) - you'll start to lose your tax free allowance which means you do actually pay more tax on the sub threshold income. Obviously it's still designed to ensure no one ever goes over 100% marginal tax rate (where you'd actually lose money by earning more).

zaroth 11y ago

What programs are out there like a MacArthur for coders? I know a bit about Google's Summer of Code, but it's not really the same...

airza 11y ago
Okay, I don't want to sound like I'm making fun of you, but you're on a website run by a company that gives large amounts of free money away to coders to explore ideas...
- sooper 11y ago
  Not exactly "free", you have to do something for it and there are strings attached.
- nmrm2 11y ago
  Comparing MacArthur Genius Grants and similar awards to venture capital isn't particularly apt. YCR or the fellowship might be slightly more comparable, but still pretty off mark. To the parent: MacArthur Genius Grants have been given to computer scientists... IDK about "coder"; ostensibly, that code should be pretty remarkable if you're getting that kind of windfall. And if the code is so remarkable, there's probably some science or engineering behind it that is the actual reason for the award. In other words, by the time code is doing something that is societally significant, there are probably ideas extant in that code that are worth codifying and explaining in something other than a programming language. And probably those ideas/results have impacts that go far beyond a particular implementation.
  - zaroth 11y ago
    I think that there's a lot of "boring" code that could be written which could have a tremendous positive impact for the world. Some of it I think, if it actually saw real adoption, which would collapse the market caps of some fairly big companies.
- zaroth 11y ago
  I've started companies which have taken (small amounts of) VC funding, and I can tell you definitively it is nothing at all like a MacArthur. Try to close a deal while telling the investor you will treat their investment like a gift, and you will know exactly what I mean. Now granted, YC is starting to do things more MacArthur like, i.e. with their YC Research initiative. In particular the equity grant in YC component is very interesting. Companies are formed to generate a profit, and investment is a direct expectation of that, or more directly, an expectation for a company to grow their market cap irrespective of any actual profit. MacArthur is the abject opposite of that, cash money without expectation.

rokhayakebe 11y ago

People always say winning the jackpot will change their lives, but from what I have seen $50,000 will change a LOT of lives for ever. In Am.Me.Ri.Ca. Give a person $200,000 and that may be just enough that they know they cannot make a mistake. Give them north of $500,000 and now they feel they can spend freely without a worry. Give them north of $1.5M and now they may literally think this money is a bottomless well.

zaroth 11y ago
Different scales and different 'changes'. You can give $50,000 to someone who has $10k/yr living expenses and it might change their life. But people with $10k/yr living expenses probably don't typically have the work experience and skill sets of your target demographic. When MacArthur finds someone who meets both criteria, well, that's great and a smaller award might even have more impact. But if you are giving an award to someone with 6-figure salary and 5-figure annual living expenses, no $50,000 isn't going to make as much of a difference in their lives. If you want to seriously free that person from thinking about money for a significant period of time, it better be 7 figures. And anyway, $1.5M is not all that far from a bottomless well (i.e. 5% per year).
- rokhayakebe 11y ago
  Correct, but remember that even in the US 4 out of 5 people make less than 6 figures yearly (Before tax).

defen 11y ago

Cormac McCarthy used his windfall to research and write the greatest (IMO) novel of the 20th century Blood Meridian, or the Evening Redness in the West

puranjay 11y ago
Try as I might, I can't bring myself to love Blood Meridian more than The Road. But I would definitely place it among my top 20 books of the last century. Perhaps even in the top 10

hugh4 11y ago

Why not just simplify it down to MacArthur Fellows are smart, and smart people are smart enough to solve the rather simple problem of not wasting a large windfall?

mattdw 11y ago
Because poor people are not stupid. They're often actually pretty damn rational within their constraints. Smarts alone does not equip one to handle a windfall.
- notjack 11y ago
  This is a very crucial point. The so called "stupid" financial behavior of people in (first world) poverty is anything but, it's a series of carefully calculated and measured responses to extreme inflexibility. Almost all means of establishing long term financial stability involve either a) put away some money now, wait for some time, then receive more money or b) risk losing some money for the chance to gain more money in a way that averages to a net positive over time. Neither of these are possible when you do not have flexibility, you can't afford to put away money when doing so means not eating for a week, and you can't afford to risk money for more money when coming out on the losing end of that deal means becoming homeless. You have to have a completely different approach to managing money when in poverty, and it sticks with you mentally even after escaping to a more stable situation.
  - teddyh 11y ago
    Yes, that was exactly my point.
- hugh4 11y ago
  If they're smart, why haven't they found a way out of poverty yet? I mean, maybe there's some weird outlying cases, but for the most part poverty is caused by shitty decisions. Stupid people make bad decisions and wind up poor.
  - 11y ago

peterhadlaw 11y ago

My father worked for a MacArthur. That woman was ruthless in her search for perfection. She did so out of love. I just want to come here and say as someone with an immigrant childhood and where my family was doing whatever we could to move up - she made my child self so happy. She personally picked out 3 industrial sized bags of Christmas presents that my dad took home to me. They filled our apartment floor.

Animats 11y ago

The MacArthur awards are amusing if you know who John MacArthur was. He made his money selling mail order life insurance and stalling on paying claims.[1] [1] William Hoffman, "The Stockholder", 1969, ASIN: B001HS4R58.

peterhadlaw 11y ago
This is the very reason the foundation was created. The family wanted to give back to the community for his actions - basically forcing him to do so.