|
|
 |
The Seven Financial Sins of
Millionaire Households
by Stephen D. Gresham
Raising five kids in
any U.S. metro area
means big bucks if
you want the best in
education — a
challenge well known
to one affluent
family who faced a
total bill of about
$2 million spread
around among private
schools, private
colleges, books,
living expenses and
other costs. After
laying down that
chunk of change to
help their children
get a leg up in a
competitive world,
they were unprepared
to shell out another
$1 million in a
single year to keep
their kid's name
clean. That was the
upshot of an early
morning telephone
call in which one of
the kids, a
20-year-old college
student, informed
his parents he had
been arrested for an
alleged attack on a
young woman. Though
their son was
eventually
exonerated of all
charges, their legal
expenses ran to over
$1 million.
Sin
#1 - Vulnerability
To Lawsuits
People with money
are targets. Being a
target for the legal
system is the first
of the seven
financial sins of
millionaire
households — these
are real-world risks
that can permanently
disable even the
wealthiest of
families. Lawsuits
can strike the
affluent from many
directions. My
father was a
physician for many
years, and he
eschewed New York
State's “M.D.”
vanity plates that
would have entitled
him to preferential
parking and other
special treatment.
“Why make yourself a
target in the event
of an accident, or
someone looking for
drugs in your black
bag?” he explained.
Of course, some
things can be
avoided or
controlled, and
other things can't.
But wealthy people
might do their best
to not to advertise
their wealth.
Sin
#2 - Working For
Employers Who Change
Their Minds
The
Shirelles were the
first “girl group”
to make the
Billboard Hot 100.
Their last
appearance there was
in 1961, at the peak
of their popularity.
But that wasn't the
end of the band,
which kept on keepin'
on for nearly 20
more years. Problem
is, retirement and
health care benefits
that were hinted at,
if not promised, by
the recording
company never
materialized. So,
members of the band
joined with other
artists of the time,
such as Sam and Dave
and The Coasters, to
bring a
multi-billion-dollar
lawsuit against the
recording industry
and the musician's
union. It was
settled out of
court. Modern
versions of retiree
frustration include
employees of United
Airlines, Enron and
the National
Football League.
Many companies mean
well, but fail to
meet the
expectations of
retirees. This trend
is just beginning —
and the outlook is
grim.
Sin
#3 - Being
Underinsured
Success in Southern
California means
being able to live
in Malibu, where the
current median house
price is over $4
million. The 2007
wildfires claimed
many expensive
residences,
including that of
Suzanne Somers,
former TV comedienne
and successful Home
Shopping Network and
Internet
entrepreneur. (Thighmaster
Gold is my
favorite.)
Property/casualty
pals tell me that
too many affluent
families have not
increased their
coverage for basic
losses — something
that is especially
dangerous when you
consider the
significant increase
in real-estate
values and
rebuilding costs.
Policies that don't
track replacement
cost based on real
value can be
woefully
insufficient, and
require updating
before a natural
disaster creates a
financial calamity.
Sin
#4 - Poor Estate
Planning
On a
New Year's holiday
in Lake Tahoe,
Calif., Congressman
Sonny Bono was
tragically killed in
a skiing accident.
Despite her touching
eulogy about his
life, former musical
partner Cher was one
of three parties to
file property claims
against Mr. Bono's
intestate will — an
ironic final duet.
Leona Helmsley died
with billions in
property. Though
several members of
her family got
nothing, her little
pup, Trouble,
scampered away with
$12 million.
Two-thirds of
Americans die each
year without a will,
one in five
millionaires doesn't
have one, and the
2007 Phoenix
Wealth Survey
reveals that 72
percent of the
affluent either have
no estate plan or
one that is out of
date by at least
five years.
Sin
#5 – Longevity
New
York socialite and
philanthropist
Brooke Astor was a
generous patron of
many causes prior to
passing away at 105.
Rich people live
longer, on average,
than do poor people.
Popular explanations
include access to
health care, better
diets and ownership
of health insurance.
Calculating
longevity is one of
the three
cornerstones for
creating a
retirement-income
program, according
to experts and the
Employee Benefit
Research Institute,
along with measuring
investment risk and
determining
catastrophic health
risk.
Sin
#6 - Having
Dependents
Call
it the “Sandwich”
generation — the
simultaneous
presence of
dependents both
older and younger
than your
high-net-worth
clients. Some 44
percent of American
couples aged 45 to
55 have both elderly
parents who are
still alive, and
children under the
age of 21. Or
consider the
Boomerang effect:
There are 25 million
adults aged 19 to 39
living at home, and
when they leave,
half return within
30 months — often
with a spouse,
partner and/or
children in tow.
Yikes.
Sin
#7 - Impulse
Spending
The
average American
home at the end of
World War II
occupied less than
1,000-square feet.
By 1970 that had
risen to 1,400 feet,
and the latest
national stats put
the average at over
2,300-square feet.
Some 36 percent of
millionaires in the
2007 Phoenix
Wealth Survey
said they had an
equity line of
credit, and 52
percent used theirs
to fix up their
homes, 24 percent to
buy cars and 24
percent to purchase
additional real
estate. Meanwhile,
46 percent of
well-off Americans
in a Wachovia survey
said they could not
save enough for
retirement because
of “impulse
spending.” Lifestyle
expectations that
created the
McMansion, the
Hummer and a $6 cup
of coffee, may be
the greatest untold
story in our list of
financial sins. Try
wrestling with a
retiring couple to
cut into their
“dinner out” budget
like my advisor
friend Greg in Boca
Raton did. He lost
the fight — and the
clients.
What
to do? Next time …
|
|
