Coming into wealth. Part 1.

Handling the often dislocating effects of sudden affluence

April 20, 2017

The first of a four-part blog about the implications of overnight wealth.

We’ve all read about it, the insidious effect of overnight prosperity. A couple wins the lottery, spends freely, and declares bankruptcy two years later.

Despite the personal unpleasantness of being strapped for cash, lack of wealth typically imposes no demands on the ego. Sudden affluence is another matter entirely, and the pressures it creates can be formidable.

After all, fulfilling the mundane requirements needed to meet daily financial obligations is what – as often as not – keeps many people in balance. When this necessity is removed, the balance often goes with it.

A liquidity event

Coming into wealth is a four-part blog post about the implications of becoming suddenly rich. An inheritance. The successful sale of a company. Landing a new high-paying job. Exercising a stock option. A lotto bonanza.

All represent examples – there are others – of what I call a liquidity event, an apparently inspirational, but sometimes malevolent, transformational moment that can ruin family relationships, friendships and much more.

The impulse to spend

Perhaps the single greatest weakness of mankind – and womankind – is an inability to resist purchasing things. The late English historian C. Northcote Parkinson summed it up in his 1960 masterpiece The Law and the Profits: ‘Expenditures invariably rise to meet and exceed available income.’

It’s this impulse to spend whatever is available that’s the undoing of many otherwise rational individuals. It’s not necessarily human nature. Rather, it’s a learned reflex that must be unlearned if you hope to remain solvent. If not held in check, spontaneous spending when suddenly wealthy is a recipe for disaster.

Sudden wealth syndrome

In this series I plan to look at what, for want of a better descriptor, can be called the sudden wealth syndrome. Symptoms of this condition include, of course, the urge to spend.

But they also encompass voices out of the past (people with whom you lost touch
but now want to become friendly again because they’ve heard you struck it rich), loss of anonymity, the investment trap and what I call the when charity becomes uncharitable condition – a temptation to give freely and indiscriminately to (apparently) worthy causes.

Your relationship with yourself

I’ve saved for last the most potentially insidious effect the sudden wealth syndrome can have on anyone afflicted – and, yes, it can be an affliction – with sudden prosperity: your relationship with yourself.

Getting unglued is all too easy and the potential for personal impairment that sudden wealth brings is unlimited. My advice: You must come to terms with yourself in the event that you enjoy the benefits of sudden wealth or you will surely live to regret it.

Geoff Funke, Senior Wealth Advisor, Scotia Wealth Management, 604.535.4721.