The Stressful Side of a Sudden Windfall

While it's true that hitting the lottery is a rare source of new-found wealth, it's generally easier to strike it rich at home: 20% of all households receive some kind of inheritance. While the newly rich can enjoy the sudden windfall, it often comes a new set of problems.

While it is true that hitting the lottery is a rare source of new-found wealth, it is generally easier to strike it rich right at home. How? We all have relatives: Studies show that twenty percent of all households receive some kind of inheritance.

What a bequest means to a particular individual is extremely personal, and for that reason it’s more likely that the beneficiary will retain the bequest. A lottery winner isn’t likely to hang onto the winnings, in part because that “gift” is impersonal: Studies have found that 70% of these seemingly lucky people go through all the money within five years.

Whether or not a beneficiary of an inheritance retains the wealth often depends on how much he or she has in savings already. Say, for example, a woman inherits $10,000. If she has $1 million in the bank, the inheritance generally won’t make her feel more wealthy. If she had less than $1,000 in savings, however, the windfall might make her feel suddenly rich -- encouraging the urge to splurge.

Many people wonder what to do with their new-found wealth. One rule of thumb is to set aside 80% for long-term investing, 10% for charity and 10% for little luxuries. Susan Bradley, a certified financial planner discusses this strategy and more in her book, “Sudden Money: Managing a Financial Windfall.” Bradley goes through a step-by-step program for moving through the process of growing into sudden wealth.

People in this situation have their own special set of problems. One difficulty is that others notice the brand new riches, and friends and relatives begin calling with their money problems hoping for a hand-out. A charity sees a new benefactor. If the recipient already feels guilty about her good fortune, these feelings will worsen it if she doesn’t comply. While others may view sudden wealth as a boon, adaptation to a new situation is often not easy -- it can be another life stress. Lack of purpose and depression can result. Suicide has been reported among lottery winners who lose their money in bad investments.

So, there is good and bad news for both the windfall recipient. The newly rich have the money, but they often also have a new set of problems.