Michael James and I discussed an interesting article by Jon Chevreau at the National Post: Even Young Millionaires Need to Worry About Financial Planning. I can’t find an archive of this article anywhere, unfortunately.
The article outlines how young athletes suddenly come into large amounts of money. These athletes tend to expand their lifestyle and spending to reflect their new riches. Many times don’t learn the importance of Personal Financial Planning until much too late in their lives.
Within two years of retirement, 78% of former NFL players have gone bankrupt or are under financial stress, while an estimated 60% of former NBA players are broke within five years of retirement, according to the March 23, 2009 issue of Sports Illustrated magazine.
Michael James did not believe the number. He questioned whether it was as bad as all that, but agreed that there was a problem. He just couldn’t think it was as bad as all that. Most likely the numbers quoted by Sports Illustrated or by Mr. Chevreau, are an understatement.
The allure of a “rich” lifestyle and the fact that you have worked very hard to receive this monetary level tends to throw off many people’s Financial Gyroscopes. I have seen this at a smaller scale with folks that have got University degrees and have lived a frugal lifestyle to get through their studies. Once they graduate and get a good-paying job, at first, they remain frugal. Then some folks decide, “Heck, I deserve it!”, and start to lose their financial minds.
I guess this is what happens with Professional Athletes, but they have the added problem of an entire species (for lack of a better term) of humans that seem to exist to prey on them, the hangers-on (much like lampreys or other parasites). These people’s raison d’etre appears to be to leech off these walking banks. This does not help these young people who suddenly get more money than they could ever dream of having. They get very odd financial advice from alleged professionals. Maybe trust people they shouldn’t trust (or worse, trust people who then betray that trust). The players’ unions are trying to fix this. We shall see how well they might do (see the Sports Illustrated article for an eye opening statement by Raghib Ismail).
Will This Happen to Me?
I remember when I was growing up, pro athletes did not make much money. A scout leader I had told us about Dick Duff because he played for the Canadiens (and the Leafs), but he had gone back to school to become a teacher. He had a job after he finished with hockey. So today’s athletes need to do this? It depends on the sport and their pay level, but if they don’t plan their finances and plan for their ENTIRE life they are doomed to fall into the Rich Lifestyle trap.
Would I fall prey to this trap? We’ll never know since my athletic talents were never dangerous to put me in this predicament.
Just to be clear, I do believe the figures. However, I find them surprisingly high. I would have guessed lower percentages for total (or near total) financial collapse in just 2 or 5 years. If even one out of four NFL players were sentient, the percentage drops to 75%.
Thanks for the clarification, maybe these guys should be given Personal Finance courses with their contracts?