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If a family that's in a good financial situation gets a windfall, then they often would be truly "blowing it" if they spent it quickly. After all, all of their bills are already paid up, and they already have next month's bills set on auto-pay. The house and two cars are in good shape. Everyone in the house has everything that they need and probably a lot of what they want. Next summer's vacation is already paid for, there's money in savings, and the pantry's full of food.
If a poor family gets a windfall, their situation might be different. They're a month behind on all of their bills and 2 months behind on their mortgage. Their furniture is all falling apart, and the refrigerator and the washing machine are both about to kick the bucket. One car isn't running, and the other's on its last legs. The kids have been needing new clothes and shoes for months, and they didn't get much for Christmas or their birthdays, either. There's a leak in the roof, the carpet hasn't been replaced in 20 years, and the whole house needs a remodel, although they'd really be better off moving because the house is too small for their family and in a bad neighborhood to boot. They've been having to get creative with meals lately because there isn't much food in the house, and they haven't been out to eat in months and have never taken the kids on a trip, other than a day trip to grandma's, maybe.
Family #2 could spend a whole lot of money pretty quickly and still really only have the "bare necessities," besides maybe a few meals out, a bigger TV than they maybe should have bought and an "unnecessary" weekend trip to the beach.
Years ago, there was a man who hit the Irish Sweepstakes for many millions of dollars. A few years later, he had to go bankrupt, he was broke. When a reporter asked him how that happened, he simply said "Riotous living". That would be me, money to me is simply a convenience, and I am eternally optimistic that I will get more money in the future.
Doesn't make it smart, but that is how some people view it.
Why, in general, do people like this tend to just waste money when they get it? Now, after the fact, she’s asking me how to invest and where to invest etc. It’s too late.
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It all comes down to money management which is a skill best acquired within own family or in young days. Not that it can't be learnt later.
Consider this: the person you're talking about has managed a couple of thousand $$ a month and now suddenly she comes into possession of 75 000. It must have been a mind blowing experience for her. For someone else, used to saving and thus absolutely comfortable with a) having much money b) delaying gratification, it's nothing. But for her it's overwhelming. However poorly she may have managed whatever she had before, she was still doing it somehow and surviving. But 75 000 - she simply had no way of knowing how to deal with that.
I’ve never understood why some people who have lived in or near poverty their whole lives blow their windfall. My aunt is 50 years old, lived off the government for most of her life, worked minimum wage part time jobs here and there, lived in and out of her parents place, just never really had any amount of responsibility and made very poor life choices and hung around people who were a bad influence on her despite numerous attempts from family to deter her from that lifestyle. I don’t care about how she lives her life, or how anyone else lives theirs. What baffles me is that abou a year ago she was awarded a $75,000 insurance settlement for some accident she got into. Mind you, she had no other out of pocket expenses, so the $75K was all hers. First thing she does is........ drum roll......... goes and buys a brand new car off the lot, that was $36K. So now she’s left with $39K. She just blew the rest of that by nickel and diming it away on frivolous stuff here and there.
Why, in general, do people like this tend to just waste money when they get it? Now, after the fact, she’s asking me how to invest and where to invest etc. It’s too late.
I have other examples also of similar behavior. Someone else I know spent the majority of their life barely making ends meet until they mysteriously landed a job as a civilian contractor over seas making $150K a year. He spent 3 years over there meanwhile acquiring all kinds of toys at home- dirt bikes, atv’s, cars, guns etc. About 6-8 months after he was back home I found out he was selling almost everything because he was broke. Didn’t pay an extra cent on his mortgage. Dumb.
What is the psychology behind this behavior?!?!? When my husband and I sold our first house, we walked away with nearly $80K in profit. We put $50K down on a new house and put the remainder in a vanguard fund as an investment. We’ve seen 20-23% return on that money the last few years.
I’ve tried talkinto these people about finances but it goes in one ear and out the other. And then they whine about being broke after they’ve blown their money on frivolous material objects.
Edit: I apologize for my poor sentence structure and grammar. I’m not an English major.
Maybe,because they are used to so little money, the windfall amount seems like so much more than it really is.
"Indeed, 70% of wealthy families lose their wealth by the second generation, and a stunning 90% by the third, according to the Williams Group wealth consultancy."
“Generation Threes are usually doomed.” “It takes the average recipient of an inheritance 19 days until they buy a new car.”
It will always be about the ability to delay gratification. I'm sure you have all seen it in your own families. Siblings will be very different. Probably someone has to really work on teaching the child with inability to delay gratification to do so. Some people will come by it naturally and it is no problem at all. Generally those people are the early retirees.
If a family that's in a good financial situation gets a windfall, then they often would be truly "blowing it" if they spent it quickly. After all, all of their bills are already paid up, and they already have next month's bills set on auto-pay. The house and two cars are in good shape. Everyone in the house has everything that they need and probably a lot of what they want. Next summer's vacation is already paid for, there's money in savings, and the pantry's full of food.
If a poor family gets a windfall, their situation might be different. They're a month behind on all of their bills and 2 months behind on their mortgage. Their furniture is all falling apart, and the refrigerator and the washing machine are both about to kick the bucket. One car isn't running, and the other's on its last legs. The kids have been needing new clothes and shoes for months, and they didn't get much for Christmas or their birthdays, either. There's a leak in the roof, the carpet hasn't been replaced in 20 years, and the whole house needs a remodel, although they'd really be better off moving because the house is too small for their family and in a bad neighborhood to boot. They've been having to get creative with meals lately because there isn't much food in the house, and they haven't been out to eat in months and have never taken the kids on a trip, other than a day trip to grandma's, maybe.
Family #2 could spend a whole lot of money pretty quickly and still really only have the "bare necessities," besides maybe a few meals out, a bigger TV than they maybe should have bought and an "unnecessary" weekend trip to the beach.
I guess it depends what you mean by "windfall".
If it's 10k from Aunt Edna then it could easily be gobbled up just catching up on bills, putting new tires on the car that was long overdue and so forth.
However, in many of these cases we're talking about amounts more like 500k or 1 mil which dwarfs the net worth of many American families.
Then that gets us into the cost of living area because in many parts of the US you can get a basic house in good shape for 150-200k while in others that number is more like 600k+.
If you read any of the articles on the Cracked forums, former columnist and editor John Cheese, who was raised in poverty, has some smart, if sometimes ranty, things to say on the topic.
His take on poor people and windfalls is touched on in a column, "The Five Stupidest Habits You Develop Growing Up Poor." People who live subsistence-level do tend to develop the mentality that extra cash NEEDS TO BE SPENT RIGHT NOW.
He says, "When you live in poverty, you're used to your bank account revolving very tightly around a balance of zero. Your work money comes in and goes right back out to bills, leaving you breaking even each month (if you're lucky). That's the life you've gotten used to. It's normal for you."
He goes on to note that windfalls are difficult for people steeped in this mentality to handle. Rather than look at extra cash as an insurance policy against coming up short on cash for bills, etc. for later, they instantly jump to all the "If I win the lottery, I'd..." fantasy content we all daydream about, and buy the stuff that was always out of reach. The thought is that if you don't buy it RIGHT NOW, that money will slowly be bled off to mundane essentials over time, and it will be as if it were never there. It becomes a "We must spend this before it disappears before our eyes" thing. Just the mentality of people who regularly see the course of real life regularly suck their bank balance down to zero ( if not lower) just about simultaneously with making a deposit. If you're used to money going out the door as soon as it comes in, and you suddenly get a big influx, it's a knee-jerk reaction to make sure, if it's gonna disappear on you anyway, it at least disappears on things you find special, for once, versus just obligations.
He made the good point that is really hard for formerly poor people to shake the notion that having extra money in any significant amount comes with a shelf life. And that mentality is one reason you hear of lottery winners winding up bankrupt rather quickly after their windfall comes in.
It's proportional. I won a lawsuit at age 25 and fifty or so years later there is still some residue, due more to luck than planning. It seemed like an infinite resource compared to my salary so I got a few luxury items. I always say,"I spend a lot of money on fast women, slow horses, and cheap whiskey; the rest I just wasted."
I married soon after, so a house and baby stuff absorbed most of the rest.
Having responsibilities changes your focus.
There are plenty of articles on the net about tragic lottery winners. Jack Whittaker is maybe the saddest example. http://vitals.nbcnews.com/_news/2012...of-misery?lite
Last edited by Crashj007; 12-08-2017 at 09:16 AM..
Reason: add link
It is also an big factor with young people from poorer socioeconomic backgrounds upon initial enlistment into the military. My spouse trained and mentored new recruits fresh from basic training as a part of his job for a time, and financial counseling is a HUGE need for any 18-19 year old who is coming into the biggest paycheck of his or her life, for the first time, and has minimal personal expenses. It's even moreso for young people coming out of a lifetime mired in poverty, which isn't uncommon in enlisted ranks.
While not necessarily a windfall, the first paycheck out of boot camp feels that way, and they were forever having to explain to junior sailors that walking out of boot camp graduation and paying cash for a new car that you wont even get to keep with you and will have to pay to garage while you go to A-school and ship out into the fleet is bad money management. This tends to bleed over into young enlisted families, too, as they marry...Navy housing is full of houses spilling with high end electronics from the base exchange, new trucks, etc., and families saying they can't afford the commissary prices on groceries.
I've read that if you made everyone fiscally equal today -- gave everyone the same amount of money -- within a year, the rich would be rich again and the poor, poor again, and I believe it. It's all about habits, values, upbringing, and self-control; not the money.
These factors of attitude are necessary, but are not sufficient. A thrifty, planning-oriented person with a modicum of intelligence and skills, would presumably manage to survive reasonably well. But it is nowise guaranteed, that such a person would manage to increase his wealth substantially. Consider for example our debates over in the Investment forum. How many dedicated savers got burned in the dot-com crash 15 years ago, having then waded into the stock market for the first time, 5 years prior? They panicked, sold at the bottom, and have been cocooned in cash ever since, earning 0.5% annually. This isn't poverty, but it isn't a means of preserving wealth, let alone increasing it.
True success is a combination of self-denial and acceptance of risk. Mere self-denial is insufficient. And willingness to accept risk, without concomitant self-discipline, is also insufficient. Both are needed, and it is a rare thing, to find both to be well-developed in the same person.
As for the bit about family-wealth vitiating after two or three generations, I wonder how this differs between the US, and elsewhere in the world. Take for example the aristocratic families of pre-revolutionary Russia, or China, or in the Hapsburg Empire before WW1. Their wealth was impaled on the pointy end of a bayonet. Fast forward 100 years. Where are they now? In ramshackle hovels in the hills of West Virginia, or in a tony penthouse in Manhattan?
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That would be me, money to me is simply a convenience, and I am eternally optimistic that I will get more money in the future.
