Now that the Powerball lottery has arrived in California, I thought it would be good to discuss the impact of unexpected or sudden wealth on one’s life.
We’ve all probably dreamed at one time or another about how fantastic our lives would become if we could only win the lottery. I’ve no doubt there are numerous winners who have significantly changed their lives for the better. But there is a dark side as well, both financial and psychological. Following is a brief exploration of the aftereffects of sudden wealth. In an upcoming issue, I’ll cover some things you can do to avoid having it wreck your life.
There are various ways you can find yourself in possession of a lot of money. Aside from winning the lottery, you could inherit cash or property, assume control of assets through divorce, receive a lump sum or structured payout as a result of a lawsuit or sell a business, to name a few. When such events occur unexpectedly, or the amounts received are unexpectedly high, you face the challenge of dealing with a level of wealth to which you may not be accustomed.
Carl Richards in the New York Times asserts that on average, 90 percent of lottery winners go through their winnings in five years or less. That’s not an encouraging statistic. Whatever the actual number, the media are replete with stories of lottery winners who have squandered their winnings in foolish ways.
Take Willie Hurt of Lansing, Mich., for example. According to Bankrate.com, he won $3.1 million in 1989. Two years later he was broke and charged with murder. His lawyer said Hurt had spent his fortune on a divorce and crack cocaine.
Then there’s Missourian Janite Lee, who won $18 million in 1993. Lee was generous to a variety of causes, giving to politics, education and the community. But according to published reports, eight years after winning, Lee had filed for bankruptcy with only $700 left in two bank accounts and no cash on hand.
Even worse is the case of Abraham Shakespeare. John Campanelli in Ohio’s Plain Dealer reports that after winning a $31 million lottery jackpot in Florida in 2006, Shakespeare disappeared three years later. In 2010 his body was found under a concrete slab. A woman who had befriended him – and allegedly fleeced him of $1.8 million, according to police – was charged in connection with his murder.
Short of death, what else can you expect as a result of sudden wealth?
One common experience is being deluged by people looking for a piece of your fortune. You will hear from salesmen, agents, financial advisers, charities, etc., promising great benefits to you for giving them your money. They want to get to you fast while you’re at your most vulnerable, because the longer you hold on to your money, the less likely you are to give it up on impulse.
You will also hear from friends and family, including those you haven’t seen for some time. Some may feel entitled to your good fortune and will expect you to share it. You may find yourself paying for meals, drinks and other expenses whenever you get together. Without careful planning, there’s a good chance you will develop an entourage of moochers.
Then there are the psychological effects. The MMCI Institute, which coined the term “Sudden Wealth Syndrome,” reports a number of symptoms.
• Identity confusion. Having money is an opportunity to rethink your life, relationships, work and involvement in the community. Some people develop feelings of confusion and uncertainty as to who they really are and what is really important to them.
• Guilt. People can react to sudden wealth by punishing themselves for having received what they subconsciously believe they do not deserve or are entitled to. The result can be self-destructive behavior.
• Loss of control. If one does not have clear, guiding values, then paranoid thinking can occur, such as excessive concerns that other people are out to get you or to take advantage of you.
My next column will tackle how to ensure that sudden wealth doesn’t wreck your life.
Los Altos resident Artie Green is a Certified Financial Planner with Cognizant Wealth Advisors. For more information, call 209-4062.