A $1.7B lottery jackpot results in more math/lottery rumination this morning in the wee dark hours. I re-read the chapter in Malcolm Gladwell’s “David and Goliath” containing psychologist James Grubman’s concept of “immigrants to wealth.”
His field of study specializes in the spectacular financial disasters of people who become suddenly wealthy without any preparation…ie. an “immigrant to wealth.” Grubman’s typical study participants are lottery winners, inventors, inheritors, and, oddly enough, drug dealers. The common denominator is they are people who quickly increased their net worth more than 10x from its previous position. The more the multiplier…the greater the risk.
A typical person will easily handle an increase of 2x or 3x- going from a net worth of $50k to $150k isn’t particularly problematic. The practical difference between $500k and $1.5M is smaller than you’d think. There are enough parallels between those numbers that it is not so strange. You will likely owe less and you might have a nicer house or flashier car. You might have less fear about the future or can ride out economic unpleasantness unscathed. Most people know someone in their peer group with a net worth of 2 to 3x than theirs. Despite the fact most people don’t talk about net worth, everyone is still speaking the same language in other facets of their lives.
The current average net worth in the U.S. for a 45-year-old is $98,150. The week’s typical lottery winner will (likely) split $1.7B three ways…approximately $500M each (give or take a few million).
Using the average of $100k, a $500M net worth increase is a 5000x difference. Almost no one has folks in their peer group with a net worth difference of 10x, much less 500x. 5000x puts you into truly rarified air. To suddenly go from managing your 401k via mutual fund, dinking around with a Robinhood account or living paycheck to paycheck to managing the equivalent of the GDP of the Seychelles presents a learning curve that is both steep and brutal.
That is why most cultures have some kind of saying about it- “shirtsleeves to shirtsleeves in three generations” in English or in Italian- “Dalle Stelle alle stalle” (“From Stars to Stables”). The Bible also contains numerous Proverbs, warning of sudden wealth and its effect on its holders (authored by Solomon, the wealthiest man in ancient Israel).
It would seem that the concept that sudden enormous wealth contains the seeds of its own destruction is something of a universal concept.
This week’s lottery winner will have suddenly found themselves in a truly strange land, inhabited by strangers speaking a language they don’t understand. While it is often fun to daydream about what we would do if we won such a sum, few of us realize how it might affect us in ways that aren’t so pleasant.
