What Is Sudden Wealth Syndrome (SWS)?
Sudden wealth syndrome(SWS) is a type of distress that afflicts individuals who suddenly come into large sums of money.Becoming suddenly wealthy can cause peopleto make decisions they might not have otherwise made. Sudden wealth syndrome symptoms includefeeling isolated from former friends, feelingguilty about their good fortune, and extreme fear of losing their money.
Key Takeaways
- Sudden Wealth Syndrome (SDS) refers to a psychological condition or an identity crisis in individuals who have become suddenly wealthy.
- Sudden Wealth Syndrome is characterized by isolation from former friends, guilt over their change in circ*mstances, and extreme fear of losing their money.
- Individuals can avoid Sudden Wealth Syndrome by planning ahead to ensure that their wealth is spent wisely, avoiding making quick decisions about how to spend their money, and maintaining discretion about their sudden influx of money.
Understanding Sudden Wealth Syndrome (SWS)
Sudden wealth syndrome is not an actual psychological diagnosis. It was originally coined by therapists whowork patients who have become suddenly wealthy. Individuals withSudden Wealth Syndrome may have acquired their wealth through a lottery win, become rich trading cryptocurrency like bitcoin, or received a large inheritance.
Many people afflicted with Sudden Wealth Syndrome deal with an identity crisis because they transition from surviving on a meager weekly, fortnightly, or monthly salary to becoming a wealthy and privileged individual.
24%
The federal tax rate on lottery winnings over $5,000. Some states may also assess additional taxes.
How to Avoid Sudden Wealth Syndrome (SWS)
Plan Ahead
Although it is not possible to prepare for every type of financial windfall, situationssuch as inheritancescan be planned out ahead of time. High-net-worth parents should organize family meetings with their adult children to discuss how they would like their wealth distributed when they die. Pre-planning can help resolve areas of potential conflict. For example, wealthy parents might inform their children that they have established a trust for each child that can only be accessed once both parents have died.
Don't Make Quick Decisions
It can be tempting for individuals to go on an immediate spending spree upon receiving news of an imminent financial windfall. Instead, it's prudent to place the money in an insured savings account at a bank or custodian until the individual has established a comprehensive financial plan. Individuals should asses their long-term life goals and look at how their newfound wealth can be used to help reach these goals. For instance, a young family that won the lottery may decide to use a portion of the winnings to set up a college fund for each of their children.
Keep the Windfall Discreet
The details of a financial windfall should be kept discreet to stop friends, family, and work colleagues from getting jealous or greedy. Once people become aware that an individual has come into a considerable sum of money, they may treat that person differently or ask for a handout or loan. Individuals can have full confidence in discussing their new financial situation with a financial planner because finance professionals cannot disclose customer details to a third party.
Is Sudden Wealth Syndrome Real?
Sudden wealth syndrome is not a recognized diagnosis, but it does offer a convenient way of understanding the psychological issues surrounding new wealth. This can include anxiety and stress surrounding money management problems, as well as the social isolation that results when friends and family learn of your new fortune.
How Do You Avoid Sudden Wealth Syndrome?
Many of the anxieties of sudden wealth syndrome result from being overwhelmed with the difficulty of managing one's new wealth. This is especially true for those who are not financially literate. One way to lessen the burden is to outsource the work to qualified professionals, such as tax accountants, lawyers, and financial planners, who specialize in handling large sums of wealth and have a duty to keep your interests in mind. It also helps to keep a low profile, since ostentatious displays of wealth may attract unwanted attention.
What Should You Do If You Win the Lottery?
The first step after winning the lottery is to sign and safeguard the ticket. Each state has its own deadlines for claiming prizes, and you will need to understand these timelines before you proceed.
The next step is to choose between the lump sum or annuity option. This will depend on annuity interest rates, and the expected returns on cash investments. A professional financial advisor can help you decide which is more profitable in the long run. They can also help you create a long-term investment and taxation plan.
Finally, it is also important to remain discreet. Many lottery winners report losing family relationships as a result of their new wealth. Some states allow lottery winners to remain anonymous, which can help avoid unwanted attention.
The Bottom Line
Sudden wealth syndrome is an informal term for the psychological and social problems that afflict people after a windfall. This can include the demands of needy friends and family, as well as the anxieties of managing such a large sum of money. While it can be difficult to manage, professional financial specialists can help you navigate those challenges.
