Lost Fortunes

LOST FORTUNES

A couple of newspaper articles caught my eye recently. One was about the model and reality TV star, Katie Price, who is apparently facing bankruptcy. The other concerned Callie Rogers, a woman who, at 16 years old, became Britain’s youngest lottery winner. Now aged 31, she has lost the £1.9 million she won.

(Image from wikimedia commons)

So these articles have things in common with each other, in that they are both about individuals who gained-and then lost-a fortune. It got me thinking: How easy must it be to lose money?

I would imagine that most people would assume millionaires were made for life. Of course, no life can ever be perfect, but generally speaking we would assume that, whatever worries they may have, material concerns play no part in a rich person’s life. Why wouldn’t that be the case? One million pounds is significantly more money than most of us can ever expect to earn, even if we work full time for the entirety of our adult lives.

In the case of Katie Price, her fortune was once reckoned to be £45 million. If we assume her fortune received the paltry 0.5% interest rate you get with saver accounts, that would bring in £225,000 a year. Could you live on a quarter of a million pounds per year? I reckon I could. And bare in mind this is the minimum you could expect to receive. Were you to take professional financial advice, you can be sure ways would be found to make a £45 million fortune grow larger than that.

Given these facts it does seem incredible that anyone could burn through £45 million. But, in actual fact, it is by no means unusual to see fortunes disappearing.

A while back, Stefan Molyneux gave a ten-minute podcast discussing an article written by one Chris Taylor. The headline of that article read, “70% of rich families lose their wealth by the second generation”. Those statistics came from a study by the Williams Group, a wealth consultancy firm. The study also showed that 90% of wealthy families lost their fortunes by the third generation.

It seems to be the case then, that fortunes don’t just keep on growing; that the rich just don’t stay rich, passing their wealth down through endless generations. Instead, what normally happens is that the money disappears.

Why should that be? I think it has to do with what’s simple and what’s difficult when it comes to money management. The simplest thing of all is spending money. Anyone can do this, and it is very much encouraged in consumerist societies.

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Why do casinos have gamblers play with plastic chips rather than their own money? The reason is because, when people place down actual notes and coins, the sight of that money on the table makes them gamble more cautiously compared to when its plastic chips you are betting with. Casinos obviously want people to shed their inhibitions and so they have you gamble with not-quite-money.

Investigative journalist, Jacques Peretti, has claimed that the virtualisation of money-the transformation of currency from coinage to credit cards to apps like Apple Pay- are similarly to do with an agenda to infantilize our relationship with money. Just wave the magic wand, and the object of desire is yours. Hell, even kiddies can do it, as proven by those stories of parents’ shock horror at the bills racked up by their kids’ online habits.

What’s harder to do is to earn money, and it’s harder still to create a fortune that experiences growth. One may acquire money through luck. The lottery winner’s gain can obviously be explained in such terms. In many ways, Katie Price’s fortune was to a good degree the result of luck as well. She won the genetic lottery and was able to cash in on her good looks, becoming the model ‘Jordan’. She was also fortunate in that she came to adulthood at a time when Reality TV was taking off. As one observer noted, “she was in the first wave of structured reality with those fly-on-the-wall shows she did. It was money for old rope and she thought the tap would never be turned off”.

But some assets have a limited lifespan. Luck always runs out in the end (the House always wins, as the old advice against gambling goes). And, as the aforementioned observer also noted, “everyone gets old...There were a whole load more like her out there, who were younger, better-looking and-most importantly-cheaper...when the work started to dry up, she was chipping away at the assets”.

Somebody had to be in the right place at the right time to benefit from Reality TV’s ability to turn nobodies into celebrities, and Katie Price was one such person. Those circumstances, and her ability to turn them to her own advantage, earned her a fortune. But, when it comes to keeping a fortune and making it grow, you cannot have too flippant an attitude toward money. Unfortunately, it is all too easy to adopt such an attitude when you have been getting ‘money for old rope’. That fortune came easily enough, why won’t it continue to do so? Because it takes a great deal more than good luck to position yourself so as to take advantage of money-making opportunities again and again. It requires real business skills which few of us have.

Mention must also be made of the downsides to being rich. Perhaps the greatest of these is the effect it can have on trust. I said earlier that Callie Rogers was lucky to win the lottery. But she came to see it more as a curse than a blessing. “It just became too much to cope with...all the stress of having the money...not knowing who loved me for me and who was using me and who I could trust”.

It must have been a lonely experience. We find it much easier to sympathise with the plight of the poor, probably because most of us have experienced the difficulties that come with not having enough money. For most people, everyday problems do tend to revolve around insufficient funds and its tempting to fantasise about all problems going away thanks to a fortune landing in one’s lap. Those who do gain fortunes do not have the luxury of such fantasies, only the knowledge that wealth is not the end of your problems only the start of different problems most people cannot empathise with. These problems include guilt (particularly when there’s no reason you are wealthy other than mere chance, such as winning a lottery or inheriting a fortune), and the aforementioned erosion of trust that occurs as a result of hangers-on attracted by your fortune more than your character. Lack of sympathy may not be entirely down to most people having no experience of owning great wealth, however. It could also be due to the fact that the remedy seems so obvious. If you are sick and tired of being rich, give your money away to a good cause.

These articles remind us that it is much easier to lose money than it is to make it grow. They remind us that money should be respected rather than taken for granted, and that, while there’s lots of problems money can solve, it won’t remove all problems from your life.

REFERENCES

The Daily Mail

Freedomain Radio by Stefan Molyneux

“The Men Who Made Us Spend” by Jacques Peretti