We’ve all heard the story about the lottery winner who quickly squanders his wealth and has little to show for it. It’s a modern-day fable, warning us that money can be washed away as quickly as it rolls in.
This is no urban legend. In fact, almost all Canadian families that find themselves suddenly wealthy will eventually wind up right back where they started. This combination of inexperience and poor financial planning is so common it even has a name: Sudden Wealth Syndrome.
Psychologist Stephen Goldbart of the Money, Meaning & Choice Institute first coined the term, which he describes as the problems afflicting individuals who suddenly come into large sums of money.
Ontario’s Daniel Carley is a textbook example. He won a $5-million lottery jackpot in 2006, and spent up to $20,000 a week until it was gone. Last year, struggling to make ends meet, he was sent to prison after pleading guilty to dealing drugs for a motorcycle gang.
Even families that manage to hold on to some wealth may still experience the ravages of Sudden Wealth Syndrome, which include feelings of isolation, guilt, and fear of losing it all.
Quebec’s Lavigueur family was infamously torn apart by their lottery win; the conflicts and tragedies that followed were documented in a book written by Yve Lavigueur (Les Lavigueur: leur véritable histoire (The Lavigueurs, their real story)) which inspired a 6-part television miniseries.
Not even the gradual growth of a modest family fortune can prevent Sudden Wealth Syndrome forever. Wealth is relative, and an inheritance of any size can be as easily wasted as a lottery win. A 2016 big bank report estimates half of Canadians will inherit $750 billion over the next decade, that’s 50% more money than changed hands over the past 10 years.
Whether through good luck or a lifetime’s work, the numbers are growing and many Canadians will receive their inheritance with little preparation or financial expertise. To protect their material assets for the long term benefit of their descendants, families must plan ahead to minimize the risk of Sudden Wealth Syndrome.