Coming into a large sum of money suddenly may sound like a dream. However, for those who actually experience it, the excitement of sudden wealth can be complex. Perhaps they signed a lucrative contract, took their startup company public, sold the business they have poured their energy into for years, or simply inherited a significant fortune. Those who are faced with a large amount of money often experience:
- Damaged personal relationships
- Poor financial decisions
- Psychological strain
- Dangerous behaviors
Even those who retain their friendships and financial assets describe the enormous emotional and intellectual burden that comes with a life-changing financial event. It seems that the reality of the dream is significantly more complex than the dream itself.
As advisors to individuals and families who have accumulated or inherited significant wealth, we have witnessed these complications firsthand and have helped many clients navigate this transition successfully. Although each person’s path is unique, there are several elements that can frequently lead to happier endings.
The Great Disconnect
Many who have experienced a liquidity event are surprised to find a great disconnect between how they imagined they would feel and how they actually feel. For one thing, there is often a bewildering array of new economic and legal concepts to master, along with unfamiliar acronyms and technical jargon. This can lead to a sense of constant anxiety or even inadequacy.
One entrepreneur who built a company and sold it for a sum beyond his wildest expectations remarked, “I knew my business, and I knew my industry. But now, I don’t even know what I don’t know.”
Some respond to this new tension by trying to avoid discomfort. Others embrace the learning opportunity. They read books, attend seminars, and try to achieve mastery as quickly as possible.
Regardless of the approach, many report having obsessive thoughts about spending, investing, or running out of money. In addition, the attempt to address an item on the newly expanded to-do list can frequently lead to analysis paralysis and an inability to make a final decision. Or conversely, it may also lead to a sense of defeat, followed by compulsive behavior and loss of self-regulation.
This kind of internal disorientation can affect external relationships as well. Sometimes jealousy, and uncertainty over how to deal with jealous behavior, can damage even the closest relationships. Feelings of vulnerability can lead to suspicion, loss of trust, and social isolation. And many individuals who acquire significant liquid wealth following an event report having major bouts of guilt – over how their wealth was acquired or over systemic or societal issues that are well beyond any one person’s control.
The result of this complex stew of emotions is often fatigue, both mental and physical. Ironically, this fatigue can make it more challenging to address the cause of these emotions. But simply taking the time to understand and recognize these very human responses can provide better preparation for resolving them when they occur.
Where Is This Coming From?
The complexity of human emotions around wealth derives from several different sources. For many of us, the money messages transmitted by parents and grandparents are a primary influence on our spending decisions and financial habits for the rest of our lives. This is true whether those messages were explicitly conveyed through dinner table negotiations over allowances or discussions about college savings, or whether they were silently learned by watching hard-earned dollars go into the church collection basket every Sunday.
One private equity investor who has bought and sold several companies admits to driving his car further than he needs to so he can refuel at a gas station that charges a few pennies less – a hardwired habit that he inherited from his mother. Attitudes about money are frequently shaped by our families of origin and are thus often connected to deep-seated emotions and memories that are just waiting to spill over to the surface. The result? The willingness to make trade-offs between money and time, risk aversion vs. the appetite for entrepreneurship, feelings of neediness, the feeling between sufficiency and abundance.
Cultural norms and narratives can be a major influence as well. Many Americans report an aversion to talking about money at a personal level, such as how much you have, how much you earn, and how much you donate. At the same time, there seems to be a deep societal fascination with stories about other people’s money, particularly when things go wrong. CEO severance packages, celebrity prenups and divorces, and disgraced heirs and their brushes with the law get attention. Affluent families that are happy, close-knit, and well-adjusted do not often make the news.
As a result of this information imbalance, few people would have any reference points that would prepare them for a sudden shift in finances. For some, the experience may feel like being dropped in a foreign land where you do not speak the language, know who to trust, know the norms, or know how to navigate your way around. It is no surprise that new arrivals in this foreign country might feel burdened by uncertainty.
At the same time, with more wealth comes more options. Surprisingly, this is not always a good thing. Barry Schwartz, the author of “The Paradox of Choice,” has observed that the more options one has, the more perfection becomes the expectation. Anything less than perfection comes with a sense of dissatisfaction or uneasiness about whether a different choice would have been even better. The travel review company TripAdvisor reports that there are 100 five-star hotels in Paris. How can anyone be sure that they have chosen the best one? Perhaps the vacation might have been more fun, more relaxing, or more romantic at a different five-star hotel. For some, the constant second-guessing associated with having too many options can turn the blessing of ample resources into a curse.
Fortunately, there are effective ways to manage these circumstances.