Quora Answer: Why Do Athletes & Lottery Winners Rarely Have Established Wealth?

The following is my answer to a Quora question: “Both lottery winners and professional athletes rarely manage to turn huge paydays into long-term wealth.  Why not?” 

This is about financial intelligence.  Acquiring a lot of money is not going to help you if you lack that financial intelligence.  We consider the circumstances of how this wealth was acquired. 

Lottery winners acquire their money in an instant.  This is by chance, regardless of their current financial state, and financial savvy.  What happens is that they spend more money, acquiring goods, and experiences, but do not consider the inherent costs of it, and create something sustainable.  For example, perhaps a lottery winner takes that money, and buys a huge mansion.  They think they have acquired an asset.  They have not considered that the mansion is a cost centre to upkeep and maintain.  That is a drain on their finances.  This behaviour is repeated with the purchase of cars, and largesse to friends and an entourage.  They spend on food, and ramp up their consumer behaviour.  Inevitably, they arrive at the point where the costs go up, and their wealth diminishes exponentially.  Since they bought many big ticket items on leverage, they are now in debt well beyond their ability to pay. 

Professional athletes, on the other hand, acquire their wealth through their talent.  Whatever the sport, that talent does not involve money management and finances.  Very few professional athletes invested much of their time into that area of knowledge since much of it was in honing the skills that get them paid well.  Over the years, they acquire specific habits which are expensive.  As long as they are earning that large wage, it is not a concern.  However, once they retire, or their career winds down, if they have not invested much of it, they are still paying the cost of a lifestyle they can no longer afford, and many of them end up in penury. 

Breaking that mould, whether a lottery winner or an athlete, or anyone who has such a sudden increase in wealth, involves buying financial knowledge through engaging the services of financial consultants, wealth relationship managers, tax consultants, and accountants.  And then having the discipline of sitting through those update meetings and sticking to an investment plan.  Financial consultancy is serious business, and if people do not take their own wealth management seriously, they will lose it.