More Top Picks Best Chest Freezers
player ready...The good news for players just selected in the NFL draft and signing Sunday as free agents: They’re becoming paid, professional athletes.
That may also be the bad news.
Adapting to a league bigger, faster, stronger than the level they last played takes some getting used to. Adjusting to the money can be equally vexing.
It’s a phenomenon referred to by several names, including “sudden wealth syndrome,” or more academically, a “positive income shock.”
According to a 2009 Sports Illustrated article, 78 percent of former NFL players are bankrupt or under financial stress within two years after retirement.
The money drama of football in particular is the setting of a new HBO comedy TV series starting next month called, “Ballers,” starring Dwayne “The Rock” Johnson.
Challenges with a sudden influx of wealth affects not only rookie professional athletes and overnight celebrities but average people who receive money windfalls for all sorts of reasons, including winning the lottery — or more commonly, people who receive an inheritance, a buyout for their small business, jury award, insurance settlement and, to a lesser extent, job bonus or tax refund.
It can be hard to handle, experts say.
“Just because someone has had success in athletics or with a widget factory, it doesn’t mean they now know what to do with an absurd amount of capital all at once,” said Michael Marcovici, senior vice president at Merrill Lynch in Chicago whose clients are high net-worth individuals with $10 million or more in investable assets.
With instant millions, a person’s financial boundaries suddenly shift.
With professional athletes, it happens when they’re young, perhaps immature and often from financially humble backgrounds, certainly by comparison with their newfound capacity. Their personal money rules often must change dramatically — and quickly.
“These guys in their early 20s are thrown millions of dollars, and they’ve never really had a sense of what that means,” Marcovici said. “They have to be more disciplined than the average person because of how things are backwards in terms of their peak earning years.”
Their key professional skill — professional athlete — gets them a position that lasts on average just a few years, an extremely compressed time to earn a lifetime of income.
“Controlling spending is one of the keys to building wealth,” Marcovici said.
The NFL has instituted its Financial Education Program, which the league says “provides players with valuable knowledge to manage their personal finances and improve financial decision-making.”
Seminars include cash management, insurance, tax planning, estate planning, investments, retirement planning, among others.
Marcovici suggests athletes keep it simple by dividing money into three priority buckets, the most important being money and assets that will anchor your money life, such as a home. Then come traditional investments such as stocks and bonds, followed by buying aspirational assets.
“Unfortunately … everything is aspirational at first,” he said.
That doesn’t mean the NFL’s latest batch of millionaires shouldn’t enjoy their money.
“Everyone should enjoy the fruits of their labor,” Marcovici said. “But when those scales get tipped it puts these young folks on a slippery slope … which has translated into financial disaster” for some.
More Top Picks Best Field Watches Under 500
Twitter @spendingsmart