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In theory, an unexpected influx of cash, also known as a windfall, isn’t a bad thing. The obvious exception being an inheritance attained when a loved one passes away.
Of course, there are other, more positive ways through which surprise infusions of cash are garnered. Work bonuses, investments taking off, legal settlements, hitting it big at the tables in Las Vegas or winning the lottery all qualify. Gambling in any form is long odds proposition for the bettor, but hey, someone wins the lottery and casinos wouldn’t exist if every patron was a loser.
But believe it or not, many recipients of unexpected windfalls aren’t celebrating. Confirming the need for advisors, plenty are best by a condition known as sudden wealth syndrome (SWS). Yes, that’s a legitimate psychological condition – one that advisors can help clients thwart.
“Becoming suddenly wealthy can cause people to make decisions they might not have otherwise made. Sudden wealth syndrome symptoms include feeling isolated from former friends, feeling guilty about their good fortune, and extreme fear of losing their money,” according to Investopedia.
Examining SWS Symptoms
Guilt is one of the most powerful human emotions and, not surprisingly, it looms large when in the SWS conversation.
Advisors can spot the burden of guilt with clients “struggling with feelings of unworthiness or responsibility toward family and friends,” according to Nationwide. Likewise, a client whose windfall arrived via inheritance may feel guilty and concerned about doing the right thing with that money because they didn’t earn it in a conventional way and it was left them by someone they held dear.
That guilt can breed another symptom – paralysis by analysis. Or in simple terms, overanalyzing every little thing that the windfall can be used for to the extent that no decisions are made. That can lead to hoarding, which is another symptom of SWS.
On the opposite end of the spectrum, there’s overspending – another symptom of SWS. For advisors, here’s a real world example of why sufferers of SWS that are profligate spenders need to be set straight. It’s empirical fact that lottery winners are more likely to declare bankruptcy AFTER receiving that windfall than the average person.
Actionable Ideas for Defeating SWS
There are graver psychological conditions than SWS and as is often noted in this space, advisors aren’t psychologists or therapists. However, SWS is beatable with education and the right planning. Translation: those suffering from SWS should engage advisors and advisors should be on the lookout for it among existing clients.
Planning is paramount because it can include the educational component will bringing durability to the windfall. The plan helps the client see the value in long-term perspectives and can illustrate how the windfall can be grown and used as a force for good.
“A robust financial plan serves as a road map to guide clients through their wealth management,” concludes Nationwide. “You can include goals-based planning to define short- and long-term objectives, tax planning strategies to minimize liabilities, and investing frameworks aligned with their risk tolerance and future aspirations. By crafting and regularly reviewing this plan, clients can feel in control of their fortunes.”
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