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Jim Dey | Instant wealth has pluses as well as pitfalls | Columns


The little village of Arthur made big news last week when the owners of C.H.I. Overhead Doors announced the company’s $3 billion sale that includes major payments to its roughly 800 employees/owners.

Checks will range from $20,000 for short-timers to high-six figures for the veterans.

What happens when sudden wealth is thrust upon those not familiar with it?

That phenomenon has been the subject of numerous studies, articles and even a 1950s television show — “The Millionaire.” The show, which told the stories of people who were given $1 million, explored the ways that sudden, unexpected wealth changed lives, for better or for worse.

Real life provides numerous examples of the downside of affluence, professional athletes who’ve squandered multimillion-dollar career earnings, lottery winners beset by friends and family members who want a piece of the action and those who retired on a lump sum that didn’t last as long as they thought it would.

Kolhberg, Kravis and Roberts, the equity firm selling C.H.I. to steelmaker Nucor, is trying to head off potential problems for employees by providing tax and financial advice to them at no cost.

So what will advisers say?

Local experts addressed the psychological and financial issues that “sudden wealth syndrome” can raise, and they offered relatively straight-forward advice.

Sterling Raskie, a University of Illinois senior lecturer in finance who runs a Springfield-based investment firm, said people need to avoid “impulsive decisions.”

“What I’ve seen in my time is that (the recipients’) decision-making is less than optimal,” he said. “If they can sit on it for six months, they can approach it with a much clearer head.”

When they decide to make decisions about their futures based on their individual circumstances, he said, they should seek advice from a financial fiduciary. That’s an individual or business who bears a legal obligation to act in a client’s best interest.

Raskie stressed the emotional impact of big money can become as big an issue as the money itself.

He said many people find themselves targets of requests for loans or business proposals and that “quite a few people do feel guilty” about their good fortune.

Champaign psychiatrist Lawrence Jeckel said a sudden change in financial circumstance can induce excitement or stress that is “overstimulating.” He said people should “breathe deeply for about a year” and not do anything.

“It’s trauma almost,” Jeckel said. “You’re at risk for being reckless with (the money).”

People, of course, bring different circumstances to the table — age, family, debt. Raskie said one sensible move at the outset can be to pay off high-interest-rate debt, like credit cards, and then avoid running it back up again.

Years ago, Forbes magazine identified six major mistakes people should avoid. They are:

Don’t make unnecessary decisions. It advised working with tax, legal and financial advisers to determine how to proceed.

  • Avoid sudden major expenditures. People need to know how much money will be consumed by taxes and “how much you can comfortably spend.”
  • Keep sudden wealth private because “you’ll get less unsolicited advice” and “won’t feel pressure from others.”
  • Maintain a normal social life to stay grounded. “Social interactions will help ease the stress.”
  • Avoid “self-medicating” with alcohol or drugs. It advised “more healthful alternatives” like exercise, talking with friends and even “participating in therapy.”

Instant wealth would be disconcerting for most people — the less experienced they are in life and/or finances, the bigger the potential problems.

That’s why investment adviser Ray Dalio suggests those in that situation not focus on the money but on what they’d like to achieve with it.

“Think hard about what you value, and put it above money,” he advises.

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