Imagine you just won the lottery, sold your business, or inherited a fortune. How would you feel? Happy, excited, relieved? Or maybe anxious, guilty, overwhelmed?
If you experience the latter, you might be suffering from sudden wealth syndrome (SWS), a term that describes the emotional, psychological, and behavioral fallout faced by individuals, or families, after an abrupt accumulation of substantial wealth — a windfall.
SWS can affect anyone who receives a large amount of money unexpectedly, whether it’s from lottery winnings, IPO or business sales, inheritance, insurance payout, or legal settlement. However, not everyone who experiences a sudden wealth event develops SWS. Some people are able to cope with the changes and challenges that come with newfound wealth, while others struggle to adjust and manage their money effectively.
In this article, we will explore the causes, signs, and effects of SWS, as well as how to overcome or prepare for it. We will also introduce you to a unique financial platform that can help you create a personal balance sheet that provides a complete picture of your finances and helps you avoid costly financial mistakes.
Have You Heard of Sudden Wealth Syndrome?
The term sudden wealth syndrome is believed to have been coined in the 1990s by Stephen Goldbart, wealth psychologist and co-founder of the Money, Meaning, and Choice Institute. He noticed that many of his clients who had received large sums of money were experiencing stress, anxiety, depression, and identity crisis. He compared their symptoms to those of post-traumatic stress disorder (PTSD), a condition that affects people who have witnessed or experienced a traumatic event.
While widely used to describe behavioral challenges linked to newfound wealth, at this time SWS hasn’t been officially recognized as a psychological diagnosis. However, many experts agree that it is a real phenomenon that can have serious consequences for the well-being and happiness of sudden wealth recipients and their families.
Common Causes for Sudden Wealth Syndrome
SWS often stems from unplanned-for financial windfalls, such as:
- Lottery winnings
- IPO or business sales
- Getting an inheritance
- An insurance payout
- A legal settlement
These events can drastically change the financial situation of the recipients, giving them access to more money than they ever had before. However, they can also create a sense of shock, confusion, and disorientation, as the recipients have to deal with the implications of their new wealth.
Some of the common causes for SWS are:
- Lack of financial education
- Societal and familial pressures
- Unrealistic expectations about being wealthy
- Difficulty adapting to a new lifestyle
We will discuss each of these causes in more detail later in the article.
If you want to learn more about how to manage a financial windfall, you can read our article on “A Complete Guide to Managing a Financial Windfall: Tips and Strategies”. It covers topics such as how to create a windfall plan, how to avoid common windfall mistakes, and how to use Kubera to track and optimize your wealth.
Sudden Wealth Syndrome in Athletes & Lottery Winners
SWS is often found among professional athletes and lottery winners, two groups that are known for receiving large amounts of money in a short period of time. However, their stories also illustrate the pitfalls and dangers of SWS, as many of them end up losing their wealth and facing financial hardship.
According to a Sports Illustrated article, just two years after retiring, 78% of former NFL players have gone bankrupt or faced financial stress. Within five years of retirement, an estimated 60% of former NBA players find themselves in dire financial straits.
Some of the reasons for their financial troubles include:
- Overspending and living beyond their means
- Making poor investments or falling victim to fraud
- Having too many dependents or family members who ask for money
- Failing to plan for taxes, inflation, and retirement
Lottery winners also face similar challenges, as many of them squander their winnings or make unwise financial decisions.
A study in the Review of Economics and Statistics scrutinized thousands of people who won between $50,000 and $150,000 in the Florida lottery. The median winner did not utilize their winnings to settle unsecured debts or enhance asset equity. Within three to five years post-winning, the average recipient was just as or more likely to declare bankruptcy compared to lottery players who had won less than $10,000.
Five Signs Someone is Experiencing Sudden Wealth Syndrome
How do you know if you or someone you know is experiencing SWS? Here are some of the common signs and symptoms that indicate someone is having trouble coping with sudden wealth:
1. Excessive Spending and/or Financial Mishandling
One of the most obvious signs of SWS is overspending and otherwise mismanaging finances due to insufficient financial knowledge. Spending or poorly investing a high percentage of sudden wealth can damage your lifetime wealth ratio, which measures how much of your income you save and invest over your lifetime.
A study in the Journal of Family and Economic Issues uncovered that people who inherit large sums in their 20s to 40s tend to save only half the money and lose the rest to spending or poor investments. The study also found that inheritors who received financial education or guidance were more likely to save and invest their money wisely.
2. Preoccupation with Wealth Loss
Another sign of SWS is fear of losing financial security as suddenly as they got it. This can result in stress and anxiety for individuals who experience a sudden wealth event. They may worry about losing their money to taxes, lawsuits, theft, or bad investments. They may also feel insecure about their ability to manage their money and maintain their lifestyle.
This fear can also lead to hoarding or hiding money, which can create more problems and conflicts. For example, some lottery winners have reported keeping their winnings in cash, stuffed in mattresses, freezers, or safes, instead of depositing them in a savings account or investing them in real estate or a retirement account.
3. Spontaneous Decision-Making
Impulsive decision-making, especially around finances, is a common symptom of SWS. Individuals who receive sudden wealth may feel pressured or tempted to make quick and rash decisions, such as quitting their jobs, buying expensive cars or houses, donating large sums to charities, or lending money to friends or relatives.
While some of these decisions may seem harmless or generous, they can also have negative consequences, such as losing income, increasing expenses, reducing assets, or creating conflicts. Moreover, spontaneous decision-making can prevent individuals from developing a clear and realistic plan for their personal finance and financial goals.
4. Tension in Relationships
Sudden wealth recipients can experience jealousy and resentment, straining relationships as individuals face pressure to share their wealth. They may feel obligated or guilty to give money to their family members, friends, co-workers, or community. They may also face requests or demands from strangers, charities, or organizations.
On the other hand, they may also feel isolated or misunderstood by their loved ones, who may not share their values, aspirations, or challenges. They may also lose trust in others, fearing that they are only interested in their money. They may also face criticism or judgment from others, who may question their choices, motives, or morals.
5. Feelings of Guilt
Guilt may emerge as individuals grapple with having more money than others around them. They may feel undeserving, unworthy, or lucky, and question why they received the money and not someone else. They may also feel conflicted about their identity, values, and purpose, and wonder how their wealth aligns with their beliefs and goals.
Guilt can also lead to self-sabotage, as individuals may subconsciously try to get rid of their money or avoid enjoying it. They may also feel depressed, unhappy, or dissatisfied, despite having more money than before.
Why Does Sudden Wealth Syndrome Happen?
As we have seen, SWS can have various causes and effects, depending on the individual and their circumstances. However, some of the common reasons why SWS happens are:
Lack of Financial Education
One of the main reasons why SWS happens is lack of financial education. People who haven’t been taught how to manage wealth typically face inadequate financial literacy and experience in the face of a windfall, leaving them ill-equipped to manage it effectively.
Financial education is not only about learning how to budget, save, invest, or pay taxes. It is also about understanding how money affects your emotions, psychology, and behavior, and how to use it to achieve your goals and values. Without financial education, individuals may make poor decisions, waste opportunities, or miss out on the benefits of their wealth.
Societal and Familial Pressures
Another reason why SWS happens is societal and familial pressures. Pressure from friends, family, and society to share wealth or conform to a certain lifestyle can lead to SWS. Individuals may feel obligated or guilty to give money to others, even if they don’t want to or can’t afford to. They may also feel compelled or tempted to spend money on things they don’t need or want, just to fit in or impress others.
Societal and familial pressures can also create conflicts and misunderstandings, as individuals may face different expectations, opinions, or values from their loved ones. They may also face envy, resentment, or criticism from others, who may question their legitimacy, integrity, or happiness.
Unrealistic Expectations About Being Wealthy
Another reason why SWS happens is unrealistic expectations about being wealthy. Individuals who receive sudden wealth may have unrealistic beliefs about the impact of money on their happiness and well-being. They may think that money will solve all their problems, fulfill all their desires, or make them happier. However, they may soon realize that money is not a magic bullet, and that it comes with its own challenges and responsibilities.
Research has shown that money can increase happiness, but only up to a certain point. According to a study by Princeton University, the optimal income for life satisfaction is around $75,000 per year. Beyond that, more money does not necessarily mean more happiness. In fact, some studies have suggested that too much money can reduce happiness, as it can create stress, isolation, or dissatisfaction.
Difficulty Adapting to a New Lifestyle
Another reason why SWS happens is difficulty adapting to a new lifestyle. Individuals who receive sudden wealth may face significant changes in their work and social status, as well as their relationships and identity. They may have to deal with new opportunities, challenges, and choices that they were not prepared for. They may also have to cope with the loss of their previous lifestyle, which may have been more familiar, comfortable, or meaningful.
Adapting to a new lifestyle can be hard, especially if it happens abruptly and without guidance or support. Individuals may feel confused, overwhelmed, or lost, as they try to find their place and purpose in their new situation. They may also feel disconnected from their old friends, family, or community, who may not understand or relate to their new reality.
Four Tips to Overcome or Prepare for Sudden Wealth Syndrome
If you are experiencing SWS, or if you want to prevent it from happening, there are some steps you can take to cope with or prepare for sudden wealth. Here are some of the best practices and tips to overcome or avoid SWS:
1. Try Finance-Focused Counseling and Support Groups
One of the best ways to deal with SWS is to seek professional help from a finance-focused counselor or therapist, who can help you understand and manage the emotional and psychological aspects of sudden wealth. A counselor can help you cope with stress, anxiety, depression, guilt, or other negative emotions that may arise from your wealth. They can also help you develop healthy and positive attitudes and behaviors toward money, and help you align your wealth with your goals and values.
Another option is to join a support group for sudden wealth recipients, where you can share your experiences and challenges with others who are in the same situation. A support group can provide you with a safe and supportive environment, where you can express your feelings, learn from others, and find comfort and encouragement. You can also find mentors, role models, or friends who can guide you or inspire you on your journey.
2. Revisit Your Purpose and Values
Another way to deal with SWS is to revisit your purpose and values, and see how your wealth fits into them. Your purpose and values are the core of who you are and what you want to achieve in life. They can provide you with direction, motivation, and meaning, and help you make decisions that are consistent with your true self.
To revisit your purpose and values, you can ask yourself questions such as:
- What are the things that matter most to me in life?
- What are the things that make me happy and fulfilled?
- What are the things that I want to contribute to the world?
- How can I use my wealth to support my purpose and values?
By answering these questions, you can gain clarity and insight into your life vision, and see how your wealth can help you realize it. You can also avoid or overcome the feelings of guilt, confusion, or dissatisfaction that may come with sudden wealth, and instead feel grateful, confident, and satisfied.
3. Collaborate with a Financial Advisor
Another way to deal with SWS is to collaborate with a financial advisor, who can help you plan and manage your wealth effectively. A financial advisor is a professional who knows the ins and outs of wealth management, and can help you reach your short-term and long-term financial goals, without squandering your newfound wealth.
A financial advisor can help you with various aspects of your wealth, such as:
- Creating a budget and a spending plan
- Paying off debts and taxes
- Investing your money wisely and diversely
- Saving for retirement and emergencies
- Protecting your assets and income
- Donating to causes or charities
- Creating an estate plan and a will
By working with a financial advisor, you can avoid or overcome the common financial mistakes and pitfalls that come with sudden wealth, such as overspending, poor investment choices, or losing money to fraud or lawsuits. You can also optimize your wealth potential, and make the most of your money.
When seeking a financial advisor, consult our detailed guide on selecting a reputable financial advisor to maximize the benefits of their expertise.
4. Develop a Personal Balance Sheet
Another way to deal with SWS is to develop a personal balance sheet, which is a document that shows your assets, liabilities, and net worth. A personal balance sheet, or, a personal financial statement, can help you get a complete picture of your finances, and see how your wealth affects your financial situation.
A personal balance sheet can help you with various aspects of your wealth, such as:
- Tracking your income and expenses
- Calculating your net worth
- Measuring your financial health and progress
- Setting and achieving your financial plans and goals
- Making informed and smart financial decisions
To create a personal balance sheet, you need to list all your assets and liabilities, and subtract the latter from the former. Your assets are the things that you own, such as cash, bank accounts, investments, real estate, vehicles, jewelry, or art. Your liabilities are the things that you owe, such as credit cards, loans, mortgages, or taxes. Your net worth is the difference between your assets and liabilities, and represents your financial value.
However, creating and maintaining a personal balance sheet can be challenging, especially if you have multiple and complex assets and liabilities. That’s why we recommend using Kubera, a unique financial platform that can help you create a personal balance sheet that provides a complete picture of your finances and helps you avoid costly financial mistakes.
Kubera is a platform that allows you to see, track, and manage all your assets in one dashboard, whether you’re suddenly wealthy or come from money. It gives you a clear and comprehensive picture of your finances, and helps you plan and achieve your financial goals.
With Kubera, you can:
- Connect your bank accounts, investment accounts, brokerages, digital assets (like crypto, DeFi and NFTs), and other online assets
- Add your physical assets, such as real estate, vehicles, jewelry, art, or collectibles
- Add your liabilities, such as credit cards, loans, mortgages, or taxes
- See your net worth and asset allocation at a glance
- Monitor your asset performance and growth
- Get alerts and notifications on your assets and liabilities
- Share your personal balance sheet with your family, friends, accountants or advisors
- Simulate, model and plan for future financial scenarios which can help you make better and more informed financial decisions and investment strategies
- Set up your beneficiary management to ensure your assets and important documents are delivered to your loved ones, in case something happens to you
Kubera is more than just a personal balance sheet. It is a powerful and user-friendly tool that can help you manage your wealth effectively and efficiently, and avoid or overcome SWS. Whether you’re suddenly wealthy or come from money, Kubera can help you make the best of your money, and achieve your financial dreams.
If you want to try Kubera for yourself, you can sign up for a trial today, and see how it can help you create and maintain a personal balance sheet that provides a complete picture of your finances.
Kubera is the ultimate platform for wealth management, and the perfect solution for SWS. Don’t miss this opportunity to take control of your wealth, and sign up for Kubera today.
