What Is Sudden Wealth Syndrome?
Sudden wealth syndrome (SWS) is distress that afflicts individuals who suddenly come into large sums of money. Becoming suddenly wealthy can cause people to stress and make decisions they might not have otherwise made. SWS symptoms include feeling isolated from former friends, feeling guilty over their good fortune, and extreme fear of losing all their money.
Understanding Sudden Wealth Syndrome (SWS)
Sudden wealth syndrome is not an actual psychological diagnosis, but a term coined by therapists who deal with patients and their issues around becoming suddenly wealthy. Individuals with SWS may have acquired their wealth through a lottery win, struck it rich trading bitcoin, or received a large inheritance. Many people afflicted with SWS deal with an identity crisis; they often move from surviving on a meager weekly, fortnightly, or monthly salary to becoming a wealthy and privileged individual.
How to Avoid Sudden Wealth Syndrome
- Plan Ahead: Although it is not possible to prepare for every type of financial windfall, situations such as inheritances can 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 pass. Pre-planning can help resolve areas of potential conflict, which lets each child know where they stand. 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, as investment professionals cannot disclose customer details to a third party.