Survival Of The Richest: How To Handle Sudden Wealth
Can a massage therapist become a multi-millionaire? For Bonnie Brown, the answer is a resounding “yes”. Brown was recently divorced and living with her sister when she answered an ad for a job as a part-time in-house masseuse with a Silicon Valley start-up with 40 employees. The pay was $450 per week. However, in addition to the salary, Brown received share options which could be cashed in should the company go public. Her employer, Google (GOOGL), did go public on April 19, 2004 and Brown became a multi-millionaire. Since the IPO, the annual rate of return on Alphabet Inc., Class A shares is 21.19% or a compound return of 3,418.03%.
Brown cashed in most of her options, started a foundation, travelled the world, stopped giving massages and started getting them, all the while allowing the remaining shares to continue their upward climb. By all reports, Brown took the sudden windfall in stride, but she is an exception.
Sudden wealth syndrome, a term coined during the ‘90s tech boom, describes the anxiety and suffering of people who just can’t cope with hitting the jackpot. If you’ve had to work, scrimp, and save your entire life and then suddenly receive a large lump sum from an insurance pay-out, inheritance, legal damages, selling a business, a 1,000-bagger investment, or even that elusive lottery win, it’s a steep learning curve.
We tend to believe we’d be great at being rich but, like everything else, it’s a skill that takes practice. Just ask professional athletes, nearly 20% of whom file for bankruptcy within 12 years of retirement or the close to 80% of retired football players who are in financial trouble only two years after leaving the game.
Fully Loaded: Overcoming The Wealth Stigma
Society has a dim view of the one-percent. The financial elite are described as snobby, selfish, self-absorbed, narcissistic, anti-social, greedy, and stupid. Some studies have found that having wealth or even contemplating money coarsens us. Psychologists at UC Berkeley observed driving patterns and concluded that upper-class motorists were four times more likely to cut other drivers off at an intersection and three times more likely to block a pedestrian waiting at a crosswalk. The researchers explained the differences by saying the wealthy are focused on themselves and their desires whereas those with lower incomes need to look outward and build bonds with others to survive.
If being rich is so bad, why are millions of Canadians gobbling up lottery tickets like they’re Skittles?
When a person suddenly jumps from one socioeconomic group to another and is now a member of a group, they formerly disparaged, it can get complicated. There could be feelings of imposter syndrome (“Why me?”), denial (“Nothing will change”), and alienation (“Hey, let’s rent a private villa in the Maldives!”)
Susan Bradley is a U.S.-based certified financial planner, author of Sudden Money: Managing a Financial Windfall, and the founder of the Sudden Money Institute, an educational institution. According to her, there are four stages of transition after a liquidity event:
- Stage 1: Anticipation
- Stage 2: Ending
- Stage 3: Passage
- Stage 4: New Normal
After the jubilation, comes the stress. Friends, family, and coworkers may feel uncomfortable or envious of your new circumstances and become aloof resulting in social isolation and guilt about having more good fortune that those around you. There may be requests for loans and expectations of generous gifts and picking up tabs which the newly rich will have to learn to navigate. Increased worry and anxiety about money and a fear of making poor decisions and losing it all could lead to decision paralysis.
Moving residences to a more secure and upscale location is common after a major windfall because, as one winner of a large California lottery said, “the Jaguar I gave my wife would have looked out of place in our old neighbourhood.” Yet making new friends is more challenging because of paranoia about being taken advantage of and not knowing whom to trust. Children may have trouble adjusting to a new school and socializing with affluent classmates who have different hobbies and interests. Parents may worry about how to onboard their children to their newfound wealth without spoiling them and creating “nepo-babies”.
For those who did not grow up in affluent circumstances, the concept of how the wealthy look and behave may come the media that typically shows only flamboyant, high-spending lifestyles. The mistaken belief that the rich flaunt their wealth could lead to compulsive overspending.
A dramatic improvement in finances can also trigger deep-seated money attitudes and habits acquired in childhood. For example, if someone was brought up with the belief that money is the source of all evil and suddenly has a lot of it, this could cause psychological dissonance because of the conflict between values and actual circumstances. Many people harbour the mistaken notion that money will solve every problem. If relationship, addiction, health, or other on-going difficulties continue or even worsen, feelings of depression and hopelessness could arise.
For those who are working, sudden wealth may cause us to leave our jobs because we feel guilty about taking employment away from someone who needs it more. However, a life of total leisure often leads to boredom and the loss of a social community of co-workers.
Another challenge for the newly rich is finding the right professionals to help navigate the emotional and financial pitfalls. Talking about money is a cultural taboo. Complaining about the difficulties of wealth is unlikely to garner much sympathy when most people are stressed about their own finances. Some financial institutions are hiring “wealth therapists” and coaches to help clients make a smoother path from the hoi polloi to the financial elite. Rates can be as high as $50,000 annually for wealth transition services.
Managing A Windfall: 99% Psychological; 1% Financial
In 2006, Wells Fargo was the first bank to hire an in-house psychologist, Jamie Traeger-Muney, to work directly with HNW clients with a net worth of $50 million or more. Today, she trains wealth counsellors in the private-wealth divisions of large U.S. banks, brokerages, and philanthropic institutions.
This kind of training is needed because most professionals in the financial sector have high levels of numeracy but may lack the skills to help clients with the emotional aspects of wealth. A 2022 survey of advisors found that while 71% said they had some familiarity with financial psychology, only a third said they had access to training on it.
How To Handle A Windfall Money And Life Satisfaction
Money will not fix relationships and it will not give your life meaning and purpose. Those are on you. However, studies show that winning the lottery, for example, provides an enduring improvement in life satisfaction, though not necessarily happiness, primarily because it improves financial circumstances.
“Money is a powerful symbol, and one that people often use unconsciously to act out emotional issues,” says Vicky Reynal, a U.K.-based financial psychotherapist. She says financial problems are less about money than about issues of security, power, control, and love.
Know Thyself
By seven years of age, our personalities are already set. This includes our emotional relationship to money. Both spendthrifts and savers will need guidance to find balance. For those who have felt financially deprived in childhood, a large windfall could be a license to fulfill every desire.
Beware Of Lump Sums
The psychological bias is to assume large sums of money will last a long time. This is one reason people tend to take pension buyouts or lump sum lottery wins (in the U.S.) versus annuities that pay a set amount over a lifetime.
It Takes A Village
According to Susan Bradley, the first action is to find a confidant. (And refrain from posting the news on social media.) The next step is to find a team of advisors—financial, legal, psychological. Depending on the amount of wealth, it may be prudent to create a trust or set up a family office that provides a range of management services including portfolio management, accounting, legal, and philanthropy. A family office can also provide consultations on making large personal purchases such as real estate, art, yachts, planes, etc.
Rita Silvan, CIM is a finance journalist specializing in women and investing. She is the former editor-in-chief of ELLE Canada and Golden Girl Finance. Rita produces content for leading financial institutions and wealth advisors and has appeared on BNN Bloomberg, CBC Newsworld, and other media outlets. She can be reached at rita@ellesworth.ca.