So you bet all your son’s money on Germany scoring seven goals, and now we have an 11 year old with $350,000. No, that’s not bad news – that’s awesome. Let’s observe from a distance, as he slowly succumbs to Sudden Wealth Syndrome (SWS):
Sudden Wealth Syndrome: It’s a Real Thing
Sudden Wealth Syndrome (SWS) sets in when huge, unexpected sums of money fall into your lap overnight. And I’m not fully sure why it’s a bad thing either. It’s like suddenly developing a medical condition that causes you to crap diamonds – I’d never get a cure.
Turns out though, SWS has some pretty negative side-effects. Observe, as Andy begins to…
1. Buy and Store in Excessive Amounts
Notice how Andy is no longer buying Happy Meals one at a time, but 52 at a go. He won’t eat it all at once of course, but he’s going to bulk buy it, and store it like a kleptomaniac chipmunk before winter.
Expect the same behaviour with toys, clothes, and if he were an adult, cosmetics or toiletries. See one of the bizarre things about sudden wealth is, we suspect it will disappear as quickly as it arrived.
So rather than save the money, we want to convert it to material stuff as fast as possible. If you check the fridge of last week’s lottery winner, chances are you’ll find half a supermarket crammed in it.
This is even worse if you were poor before. When you’re on a tight budget, you’ll be used to having your money bleed into nothing by the end of the month. So when you do have money, you quickly grab what you need at the start of the month.
So if one day you have $350,000 at the start of the month, you’ll do what little Andy’s doing – arguing with the Toys’r’Us guy who won’t sell him any more Nerf bullet supplies, because there isn’t enough Styrofoam on the planet to make that many.
Solution: Enforce a strict rule. Never buy more than you can consume.
If you have a car and your family only uses one at a time, don’t buy another one just because the COE is low. If you can only eat two trays of salmon, don’t buy 30 kilos of it just because it’s on discount.
You’re rich enough that you can handle the lack of a discount later. And the money will only disappear fast if you spend it that way.
2. Make Too Many Decisions at Once
We’ve lost sight of Andy, but don’t worry. He’s under that pile of struggling insurance agents, fund managers, bankers, etc. Most people in those professions have soft, rotund bodies, so he’ll be fine.
Oh why is he being mobbed by them?
Because SWS that’s why. Sudden wealth makes you freak out about how to hold on to your money – a few days after you get it, you start asking about all sorts of financial advice and products.
The suddenly wealthy tend to walk into, say, a fund manager’s office and declare: “I’m really rich and have no idea how money works.” The result is somewhat similar to an obese antelope wandering into a lion’s den, and then complaining about how slow it runs.
The resulting flood of offers then results in buying tons of investment schemes, property, structured deposits, insurance policies, etc. Which wouldn’t be problem, if the rich guy in question knows what he’s doing. Otherwise it just results in huge, unnecessary expenses.
Solution: Don’t immediately make plans for the future of the money. Keep it aside for a few months, while you do some homework. And don’t give in to exaggeration about how quickly the money will stagnate.
3. Guilt Trip Yourself into Giving Huge Sums Away
You can not identify Andy’s friends on the school bus. Their Casios have been replaced by Tag Heuers, and they’re acting like they own the school bus because they do.
There’s actually two reasons behind Andy sharing the wealth. One is just generosity. The other is guilt. Sudden wealth often carries a sense that it’s undeserved, and the easiest way to unload the psychological burden is to give it away.
It’s not going to a charity though. It will almost certainly end up in the pockets of friends, because that way it serves a dual purpose – it relieves guilt, while eliminating a new sense of distance (poorer friends have different lifestyles). The rich guy might even think it helps to relieve the possibility of envy, when it doesn’t.
Solution: Throw one big bash for friends, and then stop. Again, time is the solution here. After your treat, give it a year or so to think about how much to give away.
Also, be aware that giving out expensive things all the time can cause resentment. No one likes to feel patronized by someone richer, and even fewer relish the sense that they owe you something.
While most of us didn’t bet our life savings on Germany, that shouldn’t stop you from developing a smart plan to grow your money into true wealth. Find out how to do this and more at the Wealth Management Seminar 2014 : “Grow Rich Singapore Style”, organised by SingCapital Pte Ltd, a MoneySmart partner. Find out more about the event here.
What did you or your friend do with some sudden wealth? Comment and let us know!
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