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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,

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.

next_xibalba 1y ago
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.
- catigula 1y ago
  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.
  - IAmBroom 1y ago
    3rd option that has evidence-based success: Universal Basic Income.
bko 1y ago
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.
- catigula 1y ago
  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.
  - bko 1y ago
    > 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-annual-return-sp-500.asp#:~:text=the%20United%20States.-,The%20S%26P%20500%20has%20delivered%20an%20average%20annual%20return%20of,real%20return%20drops%20to%206.47%25. https://www.investopedia.com/ask/answers/042415/what-average...
  - 1y ago
RhysU 1y ago
> ...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.
- bb88 1y ago
  † Of course, that is assuming over the 40 years that politician and corporations don't try to screw people out of their investments.
- conductr 1y ago
  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
  - toshinoriyagi 1y ago
    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.
    - conductr 1y ago
      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.
- catigula 1y ago
  This probably seems very relevant to you if you're elderly and not so relevant if you don't have a home.
creer 1y ago
> 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.
47282847 1y ago
Personal anecdote: when I was 10 or so, a relative passed away and all children in the family inherited around 20k each. It was put into a fund. I think I got full authority over my share at 16 or so. It always felt like I was rich — that was a lot of money for a child to “own“. I have never touched it to this day, only ever adding savings to it, but it gave me a lot of peace of mind to know that I could, if I ever needed to. So, ultimately, it wouldn’t have mattered if I ever had it, or it was just a made up number on some paper; I am certain it fundamentally influenced my life in very positive ways. Another trait about money that I inherited is all generations in my family since and including my grandparents never had any debt. Being in debt even just for a short period would totally stress me out. I only ever buy what I can afford to without credit.

next_xibalba 1y ago

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.

catigula 1y ago
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.
- IAmBroom 1y ago
  3rd option that has evidence-based success: Universal Basic Income.

bko 1y ago

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.

catigula 1y ago
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.
- bko 1y ago
  > 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-annual-return-sp-500.asp#:~:text=the%20United%20States.-,The%20S%26P%20500%20has%20delivered%20an%20average%20annual%20return%20of,real%20return%20drops%20to%206.47%25. https://www.investopedia.com/ask/answers/042415/what-average...
- 1y ago

RhysU 1y ago

> ...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.

bb88 1y ago
† Of course, that is assuming over the 40 years that politician and corporations don't try to screw people out of their investments.
conductr 1y ago
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
- toshinoriyagi 1y ago
  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.
  - conductr 1y ago
    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.
catigula 1y ago
This probably seems very relevant to you if you're elderly and not so relevant if you don't have a home.

creer 1y ago

> 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.

47282847 1y ago

Personal anecdote: when I was 10 or so, a relative passed away and all children in the family inherited around 20k each. It was put into a fund. I think I got full authority over my share at 16 or so. It always felt like I was rich — that was a lot of money for a child to “own“. I have never touched it to this day, only ever adding savings to it, but it gave me a lot of peace of mind to know that I could, if I ever needed to. So, ultimately, it wouldn’t have mattered if I ever had it, or it was just a made up number on some paper; I am certain it fundamentally influenced my life in very positive ways. Another trait about money that I inherited is all generations in my family since and including my grandparents never had any debt. Being in debt even just for a short period would totally stress me out. I only ever buy what I can afford to without credit.