More Money, More Problems?

On a long car trip this weekend, we found ourselves scanning through FM radio stations. Somewhere in east Texas, the 1996 ballad “Mo Money Mo Problems” from the late hip-hop artist Notorious B.I.G. began playing. If you don’t know the song, here is the chorus:

I don’t know what they want from me
It’s like the more money we come across
The more problems we see

My husband offhandedly remarks – how can more money cause problems? Doesn’t money solve problems, like paying for your kids to go to school? This is true to a certain extent, but I was able to rattle off several money ‘problems’ from the tip of my tongue. There is a level of money that provides security, comfort, and happiness, but beyond that threshold, money can create more headaches, if not outright problems.

People coming in to ‘sudden money‘ from inheritance, lawsuits, divorce, or lottery winnings often face paralyzing fear of what to do with it. Bank deposits are only insured up to $250,000 per depositor per bank. Brokers, insurance agents, and annuity salesman may be calling left and right. It can be difficult to know who to trust, and there are a lot of misaligned incentives leading sales people to recommend expensive products and schemes. The financial advice industry in the U.S. is not a profession, but rather a hodgepodge of confusing titles, products, and services.

This stress is not unique to sudden money recipients, even those with years of investing experience feel the pressure to make ‘good’ investment decisions. Once money is earned and saved, no one wants to experience the pain and regret of losing it. A 20% drop in the stock market is a frequent occurrence, but interest rates on savings and bonds are too low to keep pace with inflation. Tangible investments such as real estate, gold, and private business deals provide the illusion of control but come with large transaction costs and simply make risks more opaque.

Wealth requires the selection, hiring, and monitoring of a host of professionals – attorneys, accountants, financial advisors. Each of these advisors will have access to your most intimate personal information. Bad advice, conflicted advice, negligence, or even innocent mistakes could lead to major negative consequences for you and your family.

This is a weight I carry every day as a financial advisor. It’s the reason I pursued professional designations and graduate degrees above and beyond the minimum requirements in my field and why I never stop seeking more knowledge. The stakes are too high to make an unforced error – to use a sports analogy.

Mo Money Mo Problems

Photo by Pepi Stojanovski on Unsplash

Having more money than can be spent in one lifetime leads to another set of decisions. You need carefully designed estate documents to ensure your wealth is distributed according to your desires. Second marriages, grandchildren, and heirs with disabilities complicate these decisions. If you die young, who will you appoint to oversee the money until your children are old enough to manage it themselves? Will they ever be able to manage it themselves? Will money stifle the professional energy and aspirations of your heirs? Will it ruin their lives?

Charity is another route, but how do you choose the right ones? Establishing a private foundation may provide continuity, control, and even employment opportunities for future generations. Now you need attorneys, advisors, and employees to set up and run the new organization. Similarly to investment decisions, you don’t want to waste philanthropic money.

If you own a home, you are well aware of the maintenance required to keep your home in working order, clean, and presentable. Now multiply this work by three or four and add geography between each one. Who will board up the Florida house and relocate the boat to a safe location when there is a hurricane warning? Who will open up the Maine house after the long winter? Who gets the call when the security alarm goes off?

I could go on, but I will stop there. It is possible to create a simple life with significant wealth, but that will never release the burden of stewardship. Although money is a human invention, it is very real, as are the emotions that come attached to it. These probably were not the same problems Biggie alluded to in 1996, but they are the ones I encounter on a daily basis.

 

 

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