The Danger of Becoming Too Rich Too Young
The perils of quick wealth
In the world of professional sports, it’s all too familiar.
A talented person from a humble background signs a multi-million dollar contract and is suddenly catapulted into immense wealth.
Then their story takes a dark turn. Years later, despite the massive earnings, the athlete finds themselves facing financial ruin. One of the common culprits behind this downfall is social debt, a phenomenon that can be both a blessing and a curse.
It’s Shotime
Shohei Ohtani, nicknamed Shotime, is the latest sports player to make sensational headlines. He’s a Japanese professional baseball pitcher and designated hitter who recently signed a $700 million deal with the Dodgers.
While such contracts are not uncommon in the world of professional sports, Ohtani’s deal has a unique twist. Most of the $700 million is deferred to the end of the ten years.
Delaying the payment until the end of the contract might give him more security in the future. It makes his income in the next few years more uncertain as well.
But Ohtani may find himself tempted to borrow against the contract and spend it today, essentially treating it as if he already has the money in hand.
As soon as a young athlete signs a deal like this one, a flood of old friends and family members emerges.
The repayment of the social debt begins
The young person feels a sense of debt toward their friends and family.
They offer their services, including their help in managing the young person’s newfound wealth. It is interesting that most of these friends think they can manage money when they come from poverty as well.
While some may genuinely have good intentions, others are looking to take advantage of the athlete’s success.
The pressure from friends from their hometown, plus the pressure to maintain a certain lifestyle creates a perfect storm. They spend beyond their means with no plan and no real management.
The good, the bad and the ugly
The positive side of social debt is how it can build stronger relationships and support networks.
The negative side is when the person becomes a target for those looking to exploit their success.
Saying no to friends and family turns it ugly. They face pressure to help friends and family. They’re also stuck trying to choose the right investment opportunity in a hurry, with little information. That often leads to poor financial decisions.
Living the dream
We all want to achieve that dream life and when it arrives, most of us wouldn’t have any idea what to do with it. The pressure to maintain a lavish lifestyle can quickly spiral out of control.
It’s tempting to buy a luxurious home and a high-end car. Depending on your dreams, you might want to go on a trip or buy a yacht. You can run through your money at an amazing pace.
Understanding money
When you come from a poor background, you don’t have the experience or understanding to manage money well. When you’re used to living paycheck to paycheck, it’s too easy to let wealth slip through your fingers.
I was raised in a poor family and my parents struggled to make ends meet. When I left home and went out on my own, I worked hard to be successful, but no matter how hard I worked, I was going nowhere, fast.
I believed that it was hard to make money. I believed it was difficult to get rich. That was my point of view, and my decisions were based on what I believed to be true.
Then I picked up a book that changed my life. It was Rich Dad, Poor Dad, by Robert T. Kiyosaki
It’s a story about someone who grew up like I did, in a family without a lot of money. His advantage was that he had two Dads.
Both Dads were strong fathers and worked hard. One was college-educated and one didn’t graduate high school.
Only one of them became rich. The difference was, they had very different opinions when it came to money.
One Dad would say, “study hard so you can get a job at a good company.”
The other Dad would say, “study hard so you can find a good company to buy.”
Like me, you may have been brought up to think that it’s hard to make money. This book completely changed my viewpoint.
I learned that there was such a thing as ‘good debt’ and it was better to collect investments than it was to pay off your mortgage quicker.
I learned the rich don’t work to earn money. They earn money to buy assets. Income-producing assets.
I figured out that I had to get my money working for me.
I had time to figure it out
One of the big dangers of becoming too rich too young is your lack of knowledge. Your lack of experience counts as a major factor as well. You haven’t had enough time to learn better money habits.
Many young athletes, thrust into the limelight at an early age don’t have the knowledge to manage their finances. That makes them easy targets for those who are looking to take advantage of them.
A cautionary tale
There are many real-life examples of people who get rich quickly, only to lose it all.
Some get rich through a sports contract. Others become famous musicians. You don’t have to be young to have this happen to you. If you won the lottery tomorrow, do you have any idea how you’d manage the money?
Financial education
The best thing any young person can do is learn how to manage money. Financial education helps prepare you for adult life.
Understanding the importance of budgeting, saving, and investing wisely will help you in the long run, no matter how rich or famous you become.
If you have the knowledge and skills needed to take care of your money now, you’ll know what to do if you win big in the future.
I wrote this article because I started thinking about how difficult it can be to resist the lure of easy money, especially when you don’t have a lot of experience.
So I hopped down a money rabbit hole:🐰🕳
Questions for you:
Do you have a plan for your finances?
Who can you count on to help you with your financial questions?
If you had a nothing box in your head, what would you do with it?
What is the money pit you’ve fallen into in the past and how did you get out?
Please answer in the comments below.
This can happen in other sectors besides sports. If, for example, musicians receive a large amount of money from hit records, but come from an underprivileged background and have not received any money management training, things can work out badly for them if they spent it all immediately.