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Avoid the Monopoly Money Syndrome: How to Value Sudden Wealth

Have you heard the story of the newlyweds in Vegas? The couple travel to Vegas to get married. They have very little money. They have so little, in fact, that after a small service at a chapel off the Strip, a cheap bottle of wine and a buffet dinner, the man reaches into his pocket and pulls out the last $5 to his name. Feeling lucky, he tucks his new wife into bed and tells her he’s going to try his luck at the slots. He takes the elevator to the casino floor and finds himself lost in a sea of machines. He slips his $5 into one and pulls the lever. Bells ring and lights flash. We have a winner. The floor manager congratulates him on winning $65,000. Feeling euphoric, he stuffed his lucky $5 bill in his pocket and took the rest of his win in chips.

The excitement of the spinning roulette wheel grabs his attention and he places his entire stack on red. Winner! Then black. Winner! What luck! Over the course of the evening, he grows $5 into $10 million. Just before sunrise, he places all $10 million of his chips on red. The balls spins, jumps, rolls, and lands . . . on black. Exhausted and now without chips, he makes his way back to his hotel room just as his bride wakes up. “How did you do?” she asks. “Not bad,” as he pulls the $5 from his pocket. “I broke even.”

I’ve always loved this fable. It painfully illustrates how not all money is created equally. A dollar won is not the same as a dollar earned, and this is a critically important concept for sudden wealth recipients to appreciate. If they do not, they can squander their sudden wealth just like the groom in the story.

Our Vegas gambler obviously isn’t playing with a full deck. You and I would never be so cavalier with $10 million. Money is money, right? You know a dollar in your left hand is worth exactly the same as a dollar in your right hand. You know a dollar in your wallet is worth the same as a dollar in your bank account. You also know a dollar you earned from a hard day at work is worth the same as a dollar you win or find on the ground. Not so fast…

Maybe you can’t relate to the Vegas gambler, but have you ever found money? Did you cherish this money and protect it with the same zeal as you would have if you had earned it or, because it was a “gift,” did you find yourself spending it on things you might not otherwise have? If so, you are not alone. A sudden wealth client won the lottery only because he found $20 and used it to buy $20 worth of tickets. When I asked him if he would have bought the tickets if he didn’t find the money, he looked at me as if I were a moron and responded with, “Of course not! Do you think I’m crazy?”

Regardless of the source of the money, logically, we know the value is the same, but somehow, a dollar we earn is “worth” more than the dollar we find. Research shows that those who won money in a radio contest were more likely to spend the money than those who earned it by working overtime.

Regardless of why we become stuck thinking about sudden wealth differently from other money, the bigger question is how we can avoid this. How can we put more value, weight, and gravitas on sudden wealth, making its value on par with the money we earn and the money in our retirement accounts? How can you avoid minimizing the value of your sudden wealth?

  • Become aware. Want to view sudden wealth on par with earned money? Sometimes it’s as easy as simply becoming conscious of our tendency to put more weight on money we’ve “earned” and less weight on money we’ve “found.” After having this conversation, I often see a shift in how people will talk about their sudden wealth and their plans for it. The degree of their mental shift is often a function of how undervalued they viewed their sudden wealth. They may lament earlier decisions of how they spent their money in light of their newfound perspective. Some have even laughed at how illogically they viewed their money, but nevertheless are grateful for their new understanding and appreciation.
  • Get perspective. This is an exercise that blows minds. Calculate how many hours you would have to work to earn the sudden wealth. For some, it would take hundreds of years. Or the next time you are about to make a purchase, calculate how many hours you would have to work to buy it. Then ask yourself if you’d really spend the money if you had to earn it. To get perspective, consider living vicariously through others by giving money to those with nothing to see how much they value it.
  • Create a play money account. When all else fails, embrace mental accounting! Take a small amount of your sudden wealth — an amount you can risk losing — and put it into a separate account earmarked as “mad money.” Put the rest of your sudden wealth in different accounts. If you want to undervalue your money, at least put a cap on what you’ll undervalue.

The consequences of valuing “found” money differently than “earned” money can be dramatic. Sudden wealth recipients are inclined to take more risks with found money, give it away more freely, and spend it faster and more lavishly. Even if the sudden wealth isn’t found money, such as a lottery win, any sudden wealth event can skew how you value the money. All sudden wealth recipients are at risk for de-valuing their windfall, even those who have suffered a great deal and “earned” the money.

To avoid this, follow the tips above and slow things down. Grow into your wealth. Make only those decisions you have to make and hit the pause button on major purchases and life decisions.

This article was written by Robert Pagliarini from Forbes and was legally licensed through the NewsCred publisher network.

The views and opinions expressed in this article do not necessarily represent the views and opinions of First Republic Bank. 




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