What would you do if you suddenly came into a large amount of money? Would you upgrade your home and invest the rest, putting just a little aside to build a shelter for orphaned orang-utans, just as you once said you would? Actually, you're far more likely to drive a succession of sports cars into swimming pools — a visual representation of the proverbial car crash your life is likely to become as you fritter away your cash bonanza.
A study at Vanderbilt University in the US found that lottery winners who won substantial sums were 50 per cent more likely than winners of small amounts to be bankrupt within five years.
"Winning the lottery seemed to do little to help lottery winners ease their debt," said Paige Marta Skiba, one of the researchers behind the study.
"Our results are consistent with some winners using their prize to take additional risks or buy expensive luxury goods. Others seemed to simply lack the knowledge to handle large amounts of money wisely."
This isn't true of everyone, of course, and just as there are different ways of coming into money, there are myriad ways of handling instant wealth. Here are just three stories.
"Having money makes parenting teenagers more complicated"
Peta*, 42, became a multimillionaire six years ago following the sale of her thriving small business.
"It's how funny how we tend to sugar-coat everything the further we move away from our true memories of them. If you'd asked me how things were going back when the kids [Peta has three teenagers with her husband] were little and I was struggling with maternity leave, I probably would have just cried and showed you my bills. But now I remember it as one of the best times in my life, even though we had nothing. Believe me, the irony isn't lost on me.
A lot of unwanted publicity came with the sale of the company and nothing could have prepared me for the associated fallout. I think we're all guilty of thinking about the positives of coming into money — buying a nice house or being able to travel, for example — but no one really talks about the negatives. Overnight, I had more money than I ever could have dreamed of having and we were able to buy the kind of house we'd always hoped for, but I suddenly had this huge feeling of responsibility too, a constant internal voice asking me questions like: How much should I give to charity and which ones? Should I give money to friends and family, and how much?
You assume all the money noise stops when you finally have it, but it doesn't: it's just a different soundtrack.
The requests for handouts have settled down in recent years but it was tough in the beginning. What surprised me was just how many acquaintances and people I hadn't heard from for years came out of the woodwork.
The hardest one was a call from the father who walked out on me when I was very little. He'd heard about the money and wanted to know what I'd be doing to look after him in his old age. I wish it could say it made me happy when I told him he'll never get a cent out of me, but it just made me sad.
We couldn't make head nor tail out of anything for the first few years after the money came in, but life has fallen into its own rhythm since. Obviously we don't suffer any common stresses, such as meeting mortgage payments or paying school fees, but if we have a problem it's trying to work out how best to raise our kids into adulthood without them becoming spoilt brats who think they're entitled to whatever they want.
I once read that [chef] Gordon Ramsay isn't going to leave a cent of his money to his kids out of fear it will ruin them. Maybe that's the answer. Maybe I'll have to leave it to my cat. I certainly threaten them with it enough!"
"My parents worked hard to ensure my inheritance wouldn't destroy me"
Already with a high-paying career, Harvey*, 28, increased his personal wealth by millions when he inherited family money last year.
"When you're born into a wealthy family, money is not something that's ever really talked about. You know you have a large house, but it doesn't seem all that strange because so many of your friends too do too. And aside from catching sight of the odd piece of paperwork with a staggering number of zeros printed on it, life rolls on like it does for anyone else.
Most of my childhood memories are much like anyone else's: babycinos with Mum at the cafe; playing in the park with Dad; fighting with my brothers and sisters. It's only now that I realise that not having to talk about money might have been the biggest giveaway [that we were wealthy], but kids don't really think about that stuff.
I always knew I was going to come into an inheritance from my grandfather one day, but my parents, determined that we wouldn't be the kind of kids who just coasts through life, worked hard to instil us with the right values. Pocket money and even money for the school canteen had to be earned through jobs around the house and at the age of 14, I got my first job waiting tables in a cafe before taking up bartending work to pay my way through university.
The idea was that we should be motivated by personal success rather than by money. I ended up becoming a lawyer and although I earn six figures now, I can honestly say I do what I do because I love my job.
When the money hit my account, it made little difference to my life. I'd already purchased my own home through the money I'd worked hard for and saved, and aside from paying off a small credit card debt, I haven't touched any of it.
Sure, I could become the person who drops big everywhere I go, but what kind of person would I eventually become? Although most of us don't realise it at the time, there's something about the smaller things we all have to do — having crappy supermarket meals because rego is due, or sharing
a space with a roommate — that builds character. You miss all that and you miss a large part of regular human development — and who wants to be that guy at 50?
Some of my friendships have fallen apart since I received my inheritance and that's been difficult to process. Some quickly fell into a pattern of insisting I pay for everything 'because you're rich', and others began seeing me as a meal ticket and I've had to change my approach to the way I conduct my relationships.
It helped sort the grain from the chaff but for anyone in my life, the rules are the same: everyone pays their own way. Will I tell new friends or people I'm dating about my real financial position? Ha! There's not a chance in hell."
"Money is nice, but it doesn't have to change your life"
It was third time lucky for health worker Lily*, 46, when she won just over a million dollars in Tatts Lotto earlier this year.
"What I remember most vividly about that day is the pacing. When you read the email alerting you of your win, you first assume 'scam'. But then, as you check and recheck your numbers, you go into autopilot and let yourself slide into an alternate universe where everything looks the same, but a weight you hadn't really noticed until now has been lifted.
I paced the floors until my partner came home and I pulled myself together enough to casually asked him if he could check our numbers. When he started screaming, I knew life had changed for us, but probably not in the way that you'd think.
I've always had a strong work ethic and I think that's largely due to my background. Growing up in a housing commission home, I watched my immigrant parents slog it out to give me and my siblings a good life. But it meant I also learnt the value of a dollar and the importance of putting most of it aside for a rainy day.
I'd won smaller amounts before — $12,000 here and $3000 there. By the time I won big we had a small mortgage but were financially comfortable because we'd never been frivolous with our cash.
Often when people think about winning Lotto, they think about what they're going to buy. But we
were lusting after a better work-life balance, so we simply quit our full-time jobs and moved into casual and part-time roles. We're not interested in stuff — we still drive our old cars around and, aside from one super-sturdy Ikea dinnerware set, I haven't cared to purchase anything else — but the idea of having more freedom to spend time together and enjoy life is intoxicating.
I know that doesn't sound particularly exciting, but what can I tell you? I've always been happy with what I've got.
When you come into money, some people around you can change. But in my experience, those people are a minority. We've given money to some friends and family, and each week I give set amounts to charities which have captured my heart. But the best way to describe life with my friends and family today? With 90 per cent of them, I'd say it's business as usual.
We haven't changed the way we live our lives so I think most would feel foolish asking us for handouts if we haven't offered. Besides, I'm playing Tatts Lotto again in the hope that if I win again, I'll be able to give everything to those closest to me. And believe me, you never quite forget how the people around you behaved the first time around."
* Names have been changed.
Thanks to dannyct for the tip.
My 2 cents:
You go from not having enough money problems to having too much money problems.
Lawyer up. Protect your money from leeches. Protect your money from yourself.
Very well written article, Todd.
I remember when Shaquille O'Neal's Dad, who hadn't been in the picture his whole life suddenly appeared when he became an NBA Superstar. Obviously Dad wanted his piece of the pie and commend him for not giving in to him. Hats of to you Peta* for following your instincts and not bowing to your absent Dad.
Of course every situation is different and since I and millions of others have never been in this situation who's to say what another person would do...not that I wouldn't like to find out...LOL.
A large hitter will fix all my problems!
Great article. I would want to be that guy that's well off but everyone around him has no idea he is.
can't do that by winning the big jackpot or selling a big business and making millions off the sale of it though
one shouldn't have to worry
A few more anecdotes, same old 2009 study. This is the one that looked at "mid-level" winners of between $50,000 and $150,000, not at the big winners.
CDARS for $50,000,000.00 CDARS.com stands for Certificate of Deposit Account Registry Service.
The first $50 million will be covered by the FDIC.
There is also ICS, Insured Cash Sweep to cover another $50,000,000.00 At the same banks that offer CDARS. Also covers the next $50 million.
This is for protection and you can say to beggars, "My money is tied up".
There is also the Stock Market and Mutual Funds and real estate.
Self is your own worst enemy you can lose $20 dollars with bad chooses just has easy with $20 million!
Did you mean bad choices just as easy....?
I can understand going through that amt. of money fairly quickly, esp. if the person(s) had never had a significant amount of cash before.
It's just my opinion, no data to back it up, but I've always reckoned those who win "smaller" jackpots of a million or two often get themselves into trouble by not realizing how much tax is still owed to the IRS. They win a million and get a check for $760,000 (24% taken off the top by Uncle Sam) and then buy a house, maybe a car, take a vacation and live the high life ... then get stuck with a bill for $130,000 come April 15th. (and not counting any state income tax also owed) I would also wager those people are the ones who thought "I can handle this money, no need for a financial adviser.". Too bad they didn't talk to someone or at least do some research and find out the govt. still had dibs on a huge chunk of their win.
You can't get blood out of a turnip, but the govt. darn sure can seize the turnip.
We're always hearing about the worst of the worst examples, winners who blew through most if not all their money, people such as David Lee Edwards ($27 million), Billy Bob Harrell, Jr. ($31 million), Janite Lee ($18 million), William Post ($16 million) and Jack Whittaker ($315 million). I know DLE died drug addicted and penniless and Billy Bob gave away the bulk of his win before killing himself. Post was broke and in debt just three months after winning (passing away in '06, survived by his wife, nine children and six ex-wives), while Lee enjoyed playing the big shot philanthropist until the money was gone. I know Whittaker had multiple tragedies after winning, and has been sued for bouncing checks to casinos and claimed to be broke when sued by a woman and has said he wishes he had never won.
The only way large jackpot winners could be interview years after they won is if their identities were know. Anonymity is the big topic among U.S. Lottery players but apparently the Sidney Morning Herald was unaware of that. And even more strange is the fact all Australian winners can claim anonymously.
mikeintexas, Lottery Post had the following article. "6 Lotto winners who lost it all"
June 9, 2010
Ridge runner posted on this one.
What would you do if you suddenly came into a large amount of money?
Would you upgrade your home and invest the rest:Upgrade the home? No! Invest- Yes!
A study at Vanderbilt University in the US found that lottery winners who won substantial sums were 50 per cent more likely than winners of small amounts to be bankrupt within five years: I strongly disagree with the study.
Finally: l noticed a classic thong for females on the LP gift shop apparel site- going for $10.99* bargain, so l asked my love if she would wear one in Seychelles on the beach should l get the winning jackpot numbers from LP- advertise the site, its the least l could do. Her firm answer " Absolutely Not! "
I found a similar article when looking for the amounts and was reminded of Bud Post in the article.
I'll have to go see what rdgrnr allowed, thanks.
Aside from this article, I've read that ~ 66% of all lottery winners end up going bankrupt within 5 years. Terrible statistic, but not surprising, given most don't make any plans or consult with experts prior to claiming the money. What would I do? Let's see...
1) Tell no one right away. Put my ticket (unsigned for now; how you sign it is how you must claim it) in my safe for secure keeping until I'm ready.
2) Don't claim the money until I found out if I can shield myself from publicity in my state, and talk with experts (lawyer, estate planner, sudden wealth adviser, security expert, financial planner, CPA, etc).
3) Make plans, implement them to to firewall away all the insanity that's going to come at me & provide as much security & privacy as possible.
4) Claim the money per my lawyer's advice about publicity shielding in my state, if possible.
5) Go on an FU trip, to break the "spending money = pleasure" association, so I can live on a budget & not go bankrupt
6) Be a philanthropist (so I can live a purpose driven life in retirement) & be a force for good; set up my investments to fund charitable causes.
7) Live my life in the open, but anonymous.
"I've always reckoned those who win "smaller" jackpots of a million or two often get themselves into trouble by not realizing how much tax is still owed to the IRS."
With most of the taxes taken out upfront I'm inclined to think the balance plays a small role, if any. OTOH, I'm sure that a lot of the problems come from not really understanding how much you have, which could be slightly influenced by the final tax bill. If you take home 630k after all the taxes you have enough to buy a 600k house, but without more money from somewhere else you don't have enough to own a 600k house because the cost of ownership goes well beyond the purchase price. I also think a lot of people often fail to recognize what the future will bring. That can include things in the very near future (like rear-ending the car in front of you) to long term things like inflation increasing the ownership cost of the 600k house you bought 10 years ago and making your 100k lifetime income far less than it was.
If you look at how much debt a lot of people have it's pretty clear that you don't need to win the lottery to have similar problems. Just because your local car dealer can get you financing for a 35k car, or your credit card company okays the charge for a $1300 TV doesn't mean you can afford them. There are an awful lot of people who have 10, 20, or even 30k in credit card debt largely because they've bought things they can't really afford. Or look at the people who have lots of debt or have trouble paying their regular bills, but spend their tax refund on a bigger TV.
Whether it's several million or a modest middle-class income you need to understand what that money can actually pay for and have the self-control to live within your means if you want it to last.
I'm inclined to think the balance plays a small role / which could be slightly influenced by the final tax bill
I'm inclined to think having to come up with 130 grand plays more than a "small role" or more than "slightly" influences someone's understanding of their final tax bill.
Nice . Thanks for sharing this article.
What most big winners are going to need is the services of a Private Wealth Manager (That's if you win big enough). The trouble with hiring a Private Wealth Manager is that you have to know that they even exist, which the average guy doesn't. (I know I had never heard of Private Wealth Managers until my son was recently hired by a global investment bank and told me what they are and do.) Private Wealth Managers are employed by "Private Banks". A Private Bank is not open to anybody and everybody. For instance, you could become a client of J.P. Morgan's Private Bank provided you have at least 10 million dollars of investible assets.
High Net Worth Individuals (HNWI's) are the clients that Private Wealth Managers exclusively work with. And while it may seem like it's as simple as walking into to a firm like Goldman Sachs to hire one, it's not. HWNI's are "matched up" with a particular Wealth Manager. Goldman would have lots of questions for you before they'd let you sit down with one of their Wealth Managers. "What are your goals?" will be one of the first questions they'll ask. And you have to know the answer to that question. If your answer was "I don't have any" or "I don't know", that wont cut it.
What kind of service level from your Wealth Manager will you need? Your answer to that question will determine the amount of attention you'll receive regardless of how much money is sitting in your account. If you don't know which service level you'll want, you could be headed for trouble. Of course, the higher level of service that you require will cost you more of your hard won money.
There are other questions you'd be asked, but I wont bore you with them. My point is this: If you want the relationship to be profitable and actually grow the money on deposit with a Wealth Manager, then you'll have to become your Wealth Managers partner and that takes work on the clients part. A lot of work. You don't get to simply walk away from your Wealth Manager and say "Don't call me until you've made my millions make me a lot of money."
Granted, it's a nice/good problem to have, but it's a problem that can be a real headache too. G5
One more thing while I'm at it:
More years ago when I was a lot younger than I am today, I hired a "seventies-something" attorney for help me with some personal business affairs. He used to say to me "Pay attention to your business!" He repeated it so often that I got tired of hearing him say it.
I must have said something to him about how often he repeated that phrase because he asked me "Do you know why I say it so much? It's because people with a lot of money pay attention to their business, therefore they get to keep their money. Those people that don't pay attention to their business will soon enough go broke. In my many years as a lawyer I witnessed that too many times for anybody to tell me different."
Pay attention to your business. You'll be very glad you did. G5
Insightful stuff there G5- alas when a person wins a JP, that advice “ sometimes “ goes in one ear & out the other. I am reminded of the late David Edwards attorney telling him to “ invest, invest, invest.” Dave was the one that said he wanted the money to “ last” & in the same breath, told he’s attorney to get him an advance on he’s JP win of $200k or something like that, cause he was heading to Vegas.
The attorney said Dave called a few days later asking for “ another advance” since things were going so well, that losing money was becoming a great habit for DE. Corporations & people who are wealthy have budgets cause they know without them, there will be runaway spending. That’s one advice jackpot winners need to heed: Watch your money, cause it’s not watching you.
I guess to sum up in a nutshell what I was trying to say in my earlier post is this: Most people have absolutely no knowledge of how to handle/manage large sums of money because they've never actually had to do it. I'm not much different than most people in that I'm not a millionaire now, and I've never been one, so I know that I don't have a clue as to how to go about managing a fortune.
It was my investment banker son that first told me about his firms "private bank". When he mentioned it to me, I said to him "What's a "private bank?" I never even knew such a thing existed. It was from that point that my son explained to me that private banks employ private wealth managers.
To intelligently manage millions of dollars takes someone that's skilled in doing it, and it isn't an easy thing to do! Even private wealth managers can and have screwed it up and lost someone's money. That said, IMHO, they've got a better shot at keeping and growing someone's fortune than someone who has zero knowledge of what it takes to do that. G5
...which is why any jackpot winner should " Temet Nosce."
If you know you lousy with cash, maxing out your credit cards without much thought, always behind on payments- then you ought to decide before you collect your first cheque whether you want a lump sum payment, or go the annuity route, the latter would suit you if you find it difficult to control your present spending. That's just my opinion and it's open to debate.
the battle with temptation never ends and only fools believe it does
That works, as long as you only spend the money you actually have. If you take on large amounts of debt, even the annuity might not save you.