Sudden wealth has its challenges

Most people probably have heard the story.

Someone wins a lottery, gets a large inheritance or becomes hugely successful and comes into a large amount of money. They might quit their job or buy a big house, take exotic trips, spend their money on expensive cars, clothes or jewellery and really live it up. They drop out of sight until a few years later when you hear they’ve gone through all their money and are broke.

Sudden wealth may sound like a blessing but it can cause some very real problems.

Sudden wealth syndrome (SWS) is a term that has been coined and used by psychologists to refer to adjustment problems that affect people when they come into large sums of money. Suddenly going from being an average working “Joe” to a wealthy, privileged individual can cause stress and an identity crisis with symptoms that include feeling isolated from former fiends, guilt over their good fortune and an extreme fear of losing their money.

Many Canadians could be finding themselves in this type of situation.

A Quebec couple, for example, recently won the $55 million lotto max jackpot. Many Canadians may have come in to a lot of money recently by selling their houses and cashing in on the hot housing market (particularly in Vancouver and Toronto) or selling the businesses they have spent their lives building.

As well, Canadians between 50 and 75 are poised to inherit an estimated $750 billion over the next decade, the largest intergenerational transfer of wealth in Canadian history.

Coming into sudden wealth raises a serious question – are you ready to handle the responsibility of this new-found money?

“Generally people tend to act too quickly when they come into a large sum of money,” says Marie Phillips, a wealth adviser with IPC Securities Corp. “It’s a behavioural response that can be similar to losing a loved one – you don’t know what to do with yourself so you do something just to control the uncontrollable.”

Some people will take steps to protect their personal privacy by changing their address to a post office box number and getting an unlisted telephone number to ward off individuals and/or organizations who may see opportunities in their new-found wealth.

Phillips recommends people stay calm, soberly reflect on their situation and what is important to them, their families and communities, and surround themselves with a network of trustworthy professionals such as accountants, planners and lawyers who can advise on tax, insurance, inheritance and other matters.

If you have some debt such as a mortgage you probably want to pay if off as soon as possible and top up or maximize contributions to your Registered Retirement Savings Plan and/or your Tax Free Savings Account.

If you are thinking of quitting work, you need to decide what you’re going to do with all your new spare time. What do you want to do that is going to give your life a sense of purpose?

And then there can be a myriad of financial decisions to make. Although your inheritance money and/or lottery winnings might be tax free, once you invest or save it and start earning on it, you pay tax on it.

“You may also want to change the risk tolerance of your investments,” Phillips says. “Capital preservation may be a more prudent approach – ‘I have so much money why do I need to invest to get more and worry about market fluctuations and risk.’”

“The key is not to act in haste but to take time and decide what is going to give you a sense of purpose and whether you are going to be a reaper or a steward of that wealth,” Phillips adds.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

Just Posted

WATCH: A Russian new year party in Red Deer

Hundreds fill the G.H. Dawe Community Centre for the 10th Russian Children’s New Year Party

Car hits moose north of Red Deer, driver in hospital with life threatening injuries

One person was airlifted to hospital, and another taken by ambulance after… Continue reading

Red Deer’s Ten Thousand Villages to close in 2018

This will be the last Christmas for Red Deer’s Ten Thousand Villages.… Continue reading

Celestial light show can be seen over Red Deer this week

Local students stay up to watch the meteor shower

Businesses to gather to talk about crime

Red Deer Downtown Business Association understands challenges

Watch: Man plays flaming bagpipes while riding a unicycle in a ‘Star Wars’ costume

The sight of Darth Vader, riding a unicycle and playing flaming bagpipes,… Continue reading

Dying man’s wish to see new ‘Star Wars’ movie coming true

A dying man’s wish to see the new “Star Wars” movie is… Continue reading

Bountiful polygamist believed he couldn’t be prosecuted: lawyer

Winston Blackmore’s lawyer says Blackmore did not believe he could be prosecuted

Trudeaus, Mulroneys, Erdem? Canadians who could snag a royal wedding invite

Save the date. Kensington Palace announced Friday that Prince Harry and Meghan… Continue reading

More to be done to ensure timely justice, retiring Beverley McLachlin says

Canada’s retiring top judge says more must be done to ensure the… Continue reading

Labrador mayor who was shot in face in hunting accident has died

John Hickey accidently shot himself while checking rabbit snares

Shelter dogs could go vegan in Los Angeles

Los Angeles may soon be home to a lot more vegan dogs.… Continue reading

The coolest way to serve coffee at dinner’s end

I can put together a decent dinner party. But when it comes… Continue reading

Firefighter dies, thousands more take on California blaze

One of the thousands of firefighters battling a series of wildfires across… Continue reading

Most Read

Five-day delivery plus unlimited digital access for $185 for 260 issues (must live in delivery area to qualify) Unlimited Digital Access 99 cents for the first four weeks and then only $15 per month Five-day delivery plus unlimited digital access for $15 a month