Friday, March 30, 2012

Too Much Money?

If you won $500 Million in the Powerball, would this be a good thing, or destroy your life?

Everyone is abuzz about the Powerball jackpot.  But few people bother to think, would winning this money make you really happy - or destroy your life?  For most Americans, the idea that winning a half-Billion dollars would be a bad thing is ridiculous.   But history has shown, time and time again, that sudden riches are usually a bad thing.

By now, you all know the story of Jack Whittaker, the West Virginia Powerball Winner whose life since winning has been marked by tragedy and legal problems.  His experience is not an anomaly, either.  Many lottery winners end up broke and destitute, over time.

Why is sudden wealth a curse not a blessing?   There are a number of reasons.

1.  Not used to handing money:   The poorer a person is, the more likely they are to play the lottery.   And as we have seen here, what makes poor people poor is that they make poor financial decisions.   Handing a poor person a million dollars - or 50 million - doesn't make them "rich" for very long, as they will just make the same poor choices, only on an amplified scale.  So the money goes away, quickly, to gambling, cars, houses, vacations, and of course friends who want "loans".     If you don't know how to handle money, having a mountain of it put in your lap is trouble.

Evelyn Adams, for example, gambled away a $50 million dollar jackpot, in short order.

Even folks who had millions before they won, such as Mr. Whittaker, have trouble with hundreds of millions. 

2.  A Million is Not a Lot:   As we have explored here, if you won a Million dollars in the lottery, after taxes, that might be $650,000 or less, depending on your State Tax burden.   This is enough to adequately fund your IRA for retirement.  That much money might provide you with an additional $24,000 of income a year, once you retire.   But to a lot of people, being a "millionaire" means you are "rich" and they can tear through that in short order.  For a jackpot of $2 million or less, the only thing you really should do with it, is deposit it in the bank.  If you had more than this, perhaps you could consider retiring early and living off the proceeds.

3.  Managing Mega-Money is a Full-Time Job:   If you won, say $100 Million dollars, you would have to spend  a good portion of your time managing this money.   When Old Gus says, "I'm not quitting my job" after winning the powerball, it is just a fantasy.  And quite frankly, his company would rather he quit, as he would end up being a distraction and a disruption in the workplace.   Successfully handling hundreds of millions of dollars is tricky, and you would likely have to make a lot of major life-changing decisions - like it or not.   And there is the rub, winning that much money will force you to do things that you might not want to do.

4.  Family Matters:   That much money, dumped in your lap, will change your family dynamic considerably.   You and your spouse win $200 Million, how does this change your marriage?   You will both find yourselves receiving the unwanted attention of younger and more attractive people, who will try to temp you sexually.   Will your Husband wander?   Will you?   With $100 Million in your pocket, as you going to put up with his horseshit if you don't have to?   Such a lottery winning is indeed a true test of a marriage.

If you have kids, well, how do you think they will react?   Like children, even if they are well into their 20's and 30's.   They will expect you to lavish them with money, and likely will quit their jobs.   And if you don't give them money?   Well at least one lottery winner, Jeffry Dampier, was murdered by relatives who wanted the money.  In another case, the brother of William Post tried to hire a hit man to kill him, after he won the lottery.

Ah, Family Values!

5.  Your Goals and Dreams are Irrelevant:   You just spend three weekends planting a vegetable garden, and it is finally starting to look good.  You are proud of your work, and by the middle of summer, you will have a bumper crop of cucumbers and tomatoes, just like last year.   Maybe you will put up some of those pickles that everyone raved about.   Then you win the powerball.  Suddenly, such simple pleasures in life - creating something from your own toil - are meaningless.   Might as well bulldoze it all under.   It ends up getting trampled to death by news crews, anyway.

The best things in life are free, and our simple dreams and goals are often the most enjoyable things.  Replacing these with obscene amounts of money, overnight, is tawdry and gross.   Our lives go from having meaning, to being meaningless, in an instant.

6.  Unwanted Publicity:   Once you win the jumbo lottery, your name will be in the paper (this is one of the conditions of the lottery) and in short order, news crews will show up on your lawn.  I am not kidding - they will park their news trucks on your lawn, trample your flower beds, and shove cameras in your bedroom window.  You will not be able to leave the house for days, if not weeks.

Of course, the initial publicity will die down, but now the world knows your name and where you live.  You will gets tons of letters from "needy people" wanting money, and of course, visits from those same people - perhaps some of them unhinged or violent.

The fantasy that you can stay in your home at 1313 Mockingbird lane is just that - a fantasy.  You will be forced to move in short order.

7.  Threats of Violence:   Once you are that rich, you may be subject to attack, personally.  Unhinged people will find you.   Others, being more calculating, may try to stage home invasions, robberies, burglaries, and the like.   One of your loved ones may be kidnapped and held for ransom.  Then what do you do?  They want $10 million to let a friend of yours go free - a friend you don't really like too much.  And perhaps the friend staged the kidnapping.   Who knows?  The bottom line is, you are no longer safe.   You will have to move to a more secure location, where no one knows your address, phone number, or whatever.   You likely will have to hire security guards and a body guard, at least initially.  It is scary, to say the least.

8.  Meaningless of Life:  You win $500 million dollars.   To the average plebe, this is a ridiculous amount of money.  "Honey, I scratched the car!"  "That's OK, babe, here's a suitcase full of cash, go out and buy six more!"

Things that had meaning, are suddenly meaningless.   You were saving up to buy a secondhand Harley.  Now you have 12 brand new ones, and never ride any of them.   Is this making you happy?  Of course not.   The wife leaves, the kids are mad at you (no matter how much money you give them, they think they deserve more) and your friends all want more - and you are not sure the people who claim to be your friend are really your friends.

It is like Elvis Syndrome

Some lottery winners, like Billy Bob Harrell Jr. (now THAT's a Texas name!) end up killing themselves.

* * * 

So how to Billionaires, like Warren Buffet handle this?  The answer is, they don't.   You see, they earn their money slowly, over time, and it is not just handed to them in a lump sum, so that they go from poverty one minute to fabulous riches the next.

Even spoiled rich kids who inherit vast sums from their parents have years of training within their social class as to how to handle money (although most of this group squanders it, albeit more slowly than lottery winners).

The problem is not the money, but the fact it is sudden and unearned.   Sudden wealth, like that which happens to rock stars and professional athletes (classes of people who end up broke, usually) is problematic, if you don't know how to handle money.

Unearned money is a problem, in that, not having had to sweat and toil for it, it tends to slip through your fingers more readily.

So what would I do, if I won the lottery, to try to hedge against these things?

Well, first off, you'd see this blog disappear in a hurry.   I would close every online account I have, erase every online entry I could.   And yes, I would close my practice and move from my house - not by choice.

And then I would try to figure out what the best use of $500 Million would be.   Give it away to charity?  Set up a charitable trust?  What?  Because after spending a reasonable amount to support myself, the remainder would be, well, just excess.

The temptation, of course, would be to give money to family and friends.   But how do you go about doing this, without similarly ruining their lives?   Like pot-smoking kids who live in their parent's basement, if you start handing out tens of thousands of dollars to friends, or giving them cars, a la Oprah, they would start to expect this sort of thing.

And how do you decide which friends get how much?   It is tricky - casual acquaintances will suddenly be your best friend.

The best approach, I am sad to say, is to keep enough money to support yourself comfortably, and give the rest to charity.  Perhaps you could give friends and family a nominal amount (this would piss them off, of course).  But the best approach would be to say, "Sorry, but if I go down this road, where do I stop?  How do I decide who gets a dollar more than anyone else?"

And you will find out, in a real hurry, who your real friends are.

Why give it away?  Well, to be sure, you could do things like buy a corporate jet, or a mega-yacht.  But both require a steady stream of income to maintain.   You could have Saville-Row suits made and go to all the upscale hotels and clubs.  But here's a clue - the people who are really rich are not going to rub elbows with a lottery winner.  And who wants to wear suits and spend time in stuffy hotels?

Therein lies the problem.   All that "rich people stuff" they show on TeeVee and in the magazines, well, I don't want any of it.   Some overwrought house that I had no hand in personally decorating and designing?  No.  And the people who own those never even visit them - they are about as personal as a hotel room.   Fancy cars that are a pain in the ass to drive - like Ferraris and Lamborghinis?  No thanks.

To me, that sort of bloated excess is just gross.

What about starting a business?   Really?  Winning the lottery will make me an astute businessman?  I doubt it, and the track record for businesses started by lottery winners is pretty bleak.

No, the more I think about it, the worse it looks.  I wouldn't mind padding my IRA account a bit with a few hundred thousand.  I wouldn't mind having a little extra money for a trip to Spain.

But I think $500 Million would basically ruin my life. 

And it is funny, but most of us don't bother to think this through.