Here’s how to become a millionaire overnight: win the lottery. But before you start playing, know that rich people have their own set of problems. You may have heard about how some of them harbor millionaire secrets, but they’re not the kind you’d want to have.

Image from guardian.co.uk

A study I read several years ago revealed the fate of sudden millionaires through lottery tickets or unexpected inheritance. The panorama was devastating. Very few people are able to survive the fame, the incessant supplications for help, the recent accumulation of “friends”, the hounding from salesmen and, especially, the advice and recommendations for “good” investments.

Sudden Wealth: Too Much, Too Soon

One case in particular caught my attention, since I knew the man personally. One of eight grandchildren, he lived most of his adult life struggling to make ends meet, although he knew that eventually he would inherit a sizable sum from his grandparents. When the time came to receive his share, he was 39 years old and unemployed. I had the opportunity to visit him a couple of months later at his luxury home where he had stashed 8 very expensive automobiles (maybe he figured he was Jay Leno).

Since we were not close friends, I did not see him again for 2 years, until a casual encounter in a local restaurant. When I asked how he was doing, he confessed that he had lost everything and was looking for a job. Here’s what had happened to him: perhaps you remember a craze in Russian bonds several years ago. He had invested over a million dollars (his liquid assets) in these bonds, believing the broker who claimed that returns would be “fantastic”. The Russian government defaulted, and billions of dollars disappeared in smoke.

Lottery Winners And The Curse of Sudden Wealth

Another case involves “William “Bud” Post, who won $16.2 million in the Pennsylvania lottery in 1988 but now lives on Social Security. He says: “I wish it never happened. It was totally a nightmare.” There are many horror stories out there of riches to rags, even of attempted murder by relatives hoping to get their hands on the pie.

So why do so many lottery winners go broke over such a short amount of time? In truth, there are many factors as to why the suddenly wealthy end up going broke as quickly as they got rich. I’d like to explore one factor in particular that may contribute to their downfall.

Wall Street Casino

In the investment world, a very interesting theory called “Prospect Theory” analyzes the behavior of investors, and uncovers the fact that emotions are more powerful than reason. Prospect theory also explains why investors hold onto losing stocks: people often take more risks to avoid losses than to realize gains. For this reason, investors willingly remain in a risky stock position, hoping the price will bounce back. Gamblers on a losing streak will behave in a similar fashion, doubling up bets in a bid to recoup what’s already been lost. Here’s a bit more about this theory:

Individuals are much more distressed by prospective losses than they are happy by equivalent gains. Some economists have concluded that investors typically consider the loss of $1 dollar twice as painful as the pleasure received from a $1 gain. Researchers have also found that people are willing to take more risks to avoid losses than to realize gains. Faced with sure gain, most investors are risk-averse, but faced with sure loss, investors become risk-takers.

Have you checked your stock brokerage accounts lately? As we have seen with the stock market during the financial crisis of 2008-2009, investors — especially the small ones like you and me — tend to panic when they see their (paper) investments dwindling rapidly. On a whim, they decide to engage in stock market timing and sell at a loss, or hold onto bad stocks because Uncle Rick (or a co-worker) gave them a “winning” tip. Let’s face it: Wall Street is a huge casino that attracts the gambler inside of all us. Who can resist making a lot of money without really working? Well, the smart ones, for example; those who refuse to let their emotions get the better of them: Warren Buffett anyone?

Greed Is Not Good

The Russian scheme peddled by unscrupulous brokers and the record-breaking Ponzi pyramid for $50 billion attracted very smart and powerful people who let greed dictate their decisions. Once greed takes hold, people may find themselves behaving irrationally. Over time, greed can prove to be the downfall of many fortunes.

So, dear friends, apply your own personal Prospect Theory in these challenging economic times. If you are holding stock in solid companies, keep them; if your investment is too risky, get rid of the shares, even if you lose money in the process. Now that the market seems to have begun some kind of recovery, it’s a good time to take stock (pun intended) of your financial position and to make the right decisions.

Why Lottery Winners Go Broke: Prospect Theory At Work

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I’ve discussed how to avoid foreclosure and how to avoid bankruptcy in the past, but in some cases, things don’t work out too well, and there are people who end up becoming casualties of the real estate bust, credit crisis and weak job market.

Lots of people have been forced into homelessness due to a variety of reasons. Many cases of homelessness are because of mistakes and choices people make in their lives. There are those who fall into substance abuse and become stuck in this kind of existence. But there are other cases — particularly in recent years — that are not from bad choices. In some situations, it may be due to poor planning.

But this is not the entire story because there are those who fall into homelessness even with reasonable planning. Sometimes, even when you think you’re sufficiently ready for any kind of emergency, the sky does fall on you and you find yourself reeling from an unrecoverable financial predicament. Bad health can do it. Extended job loss can do it as well. Sheer bad luck and misfortune can just be in the cards for a while.

I used to think that with enough savings and preparation, nothing is insurmountable. Well, I’m halfway through my life now and I’ve seen enough to think otherwise. Sometimes, it’s about crossing your fingers too, and hoping that you never have to face a financial tsunami in your lifetime.

On that note, I’d like to share this CNN video that I found quite surprising in many ways. It’s about “tunnel dwellers” in Las Vegas; not everything is what it seems…

Steve Dommer and his girlfriend, Kathryn, live in the depths below the Vegas Strip. They created an elaborate 400-square-foot space, complete with a living room, bedroom, kitchen and workshop to fix bicycles. Everything is elevated off the floor with wooden pallets or milk crates because of potential flooding.

The guy in the video does not look homeless, yet he is. He’s coping, somehow. I guess this is the type of story that reminds us that homelessness can befall anyone, and why public awareness of programs like Help USA is important.

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• Sun’s Financial Diary: October 2009 Score Card — Part I: Net Worth
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Recent Carnivals

• Carnival of Personal Finance
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How One Homeless Person Lives: Coping With Homelessness

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Today is Blog Action Day 2009, and I have been a little late with my entry for this year. That’s okay, because I revived my 2007 article (on 10 Simple Ways To Save Money and the Environment) as a featured post and hopefully, it shared in the spirit of what this day is all about. As I recall, Blog Action Day’s theme in 2007 was about the environment, which has a lot of bearing on this year’s theme, which is on climate change.

I want to say a few words about this year’s focus — climate change. It’s a topic that’s highly apropos, and which has been receiving great attention lately. I can’t remember another year when I thought about this more, and here’s why. I’ve got family and friends in South East Asia who’ve seen more than their share of weather-based disasters recently. Nature has been particularly rough on the Pacific region lately, hitting tropical countries with a vengeance.

Image from advocacy.britannica.com

I described their plight in my article discussing how an emergency plan may not necessarily help out when we’re hit by a once-in-a-blue-moon catastrophe. I don’t know whether you’ve noticed, but these unusual typhoons and hurricanes we’re seeing in recent years, which are described to have rare magnitude and strength, seem to be happening more frequently of late. Could these all be caused by climate change?

Regardless of what causes the crazy weather we’ve been seeing — El Nino, climate change, ordinary pattern shifts — the aftermath has been tough. My family and friends living in Asia have been impacted directly by it, pretty much in the same way that people in the Gulf coast here in the U.S. have been affected by the huge calamity that was Hurricane Katrina. When we talk about preparing for emergencies, our priorities should really be focused on large scale preparedness, such as improving infrastructure and community systems that can prevent the severe devastation of a community. And much of this sort of thing is rooted in people’s awareness of their environment, in a long term vision for community and care about what happens around us.

So how well is the world listening to Mother Nature’s sobering wake up calls?

Other News: It’s Our Birthday

I’m going to change the subject here and share with you other, more sanguine news: The Digerati Life turned THREE today. Woot! I’ve dug up its birth announcement from exactly 3 years ago. Can’t believe we (e.g. you, me and the blog) have lasted this long together. To be honest, I can’t believe all this time has flown past, since it sure doesn’t feel like it. And the cool thing? We’re still having fun, right? Thanks so much to all the readers, visitors and subscribers of this blog for allowing this to be such a wonderful ride. We owe our longevity to all of you!

Reflecting On Climate Change on Blog Action Day

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Every year, we hear about yet another place that has suffered some kind of disaster or another: from terrorist attacks to tornadoes, wild hurricanes and earthquakes, we face the wrath of both nature and man, and accept this as part of our existence. For me, I worry about dry summers and the possibility of wildfires in the region where I live. I’ve put together a list of fire safety tips for those of us who are vulnerable to fires or who just want to stay safe. And for an even bigger list on how to get ready for a disaster, here’s what FEMA says about planning for emergencies.

I was compelled to write this post because over the last week, I was reminded once more of just how ruthless Mother Nature can get, when she hit close to home for me. You see, my roots are in Manila, Philippines, where many of my family and friends live (and a place I often visit), and last week, the region experienced a strong rain (typhoon Ondoy/Ketsana) and flash floods the likes it’s never seen before (or I’ve seen before). The country is used to this kind of weather but this was just unbelievable. When the floods took over, the place was 80% underwater, much like how it happened in New Orleans some years ago. I’ve been through some bad floods before, but this is just crazy:

Some of these videos are surreal and frightening: they remind me of how I felt when watching Hurricane Katrina barrel down upon the Gulf coast and when I viewed the destruction of Thailand’s huge tsunami in the news (or even when I read about the floods in Georgia recently). Some people I know are still missing their loved ones; with communication cut off in certain places, it’s hard to know what’s going on over there.

What About An Emergency Plan?

The tough thing is that in a developing country, an emergency plan isn’t much of a priority. Most people don’t even have personal property insurance to cover losses — it’s all about surviving day to day, with many living a hand-to-mouth existence. Infrastructure is weak, which has certainly contributed to the severity of the floods that Manila has experienced. So what can we do in this kind of situation?

Some disasters are so far-reaching that it’s hard to prepare for them. And at other times, your emergency plan is something you aren’t really able to put into action because it can be too late. I believe that no matter how prepared we are, when a calamity of massive proportions enters the picture, all bets are off. If we survive the disaster, then we have to face the aftermath and that’s when most of the world hopes that when it happens to them, that aid, government assistance and donations can help with rescue and relief efforts.

For help or donations, you can visit the Philippine National Red Cross.

Do You Have An Emergency Plan When Disaster Strikes?

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There’s this lady who decides to revolt and bail out on her debts. If her information is accurate, her reasons seem justified (though some will be compelled to criticize her actions):

The summary: this very courageous (or foolish? you decide) Bank of America customer gets peeved over the hike in her credit card rates to 30% even though she is a good customer. She calls BofA to try to negotiate her rates and instead, they refer her to a debt counseling and consolidation service (the problem is not with her budget). Hmmmm…..

So now she’s fed up and decides to send a message to the “banking elite” through YouTube: She’s going to halt her payments and won’t be paying off her credit card debt until she gets her original rate back or unless the bank decides to give her a too-good-to-pass pay off offer. “Stick that in your bailout pipe and smoke it,” she tells them.

Hearing her outcry and call to action, would you be willing to sacrifice your credit score to make such a statement?

It seems that the banks and card companies do their bullying in the hopes that most of their customers would just roll over and pay up. But there will be customers who aren’t going to take it — these are the people that card issuers should be listening to and negotiating with. These customers are willing to keep paying off their debt at reasonable rates but by pushing them over the edge, card issuers are leaving them no choice. So the harried card holders are going to do the drastic thing and bail out on their debts. I think it’s pretty stupid for these financial institutions NOT to realize this.

Can’t BofA see that their customers just want some fair and reasonable treatment? Oh I forgot, all that went out the window with the subprime meltdown. Apparently, taxpayer bailouts haven’t been enough. Banks have to put the squeeze on their customers too.

So who’s going to blink first? Well, who’s got more to lose?

Lazy Man’s Plight

All this reminds me of the story of a friend of mine: someone else who’s fighting the good fight is my buddy Lazy Man. If you haven’t heard his story yet, it hasn’t been a bed of roses for him recently. He’s been slapped with a cease and desist order from a big corporation (MonaVie of Acai Berry fame) for alleged trademark infringement, but really, they just don’t like the “negative publicity” that Lazy Man has heaped upon them with his writeups. If these were glowing reports from a blogger, they would never make such a stink.

I wish Lazy Man all the luck on this one. You can check out his update on the case: MonaVie Sends A Second Cease & Desist, as well as the original MonaVie article that started it all. It would be great if you can stop by at Lazy Man’s site to share your support.

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How One Debtor Resolves Her Credit Card Problems

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How to be a millionaire? How about trying to hold on to the money you’ve earned?

This would break your heart if it did happen to you (though there’s question of its veracity). I just read a story from Tel Aviv about this unfortunate woman who lost her mattress. She had been sleeping on the same old, ratty mattress for decades, and her daughter felt she would do her mother a favor by trading it in for something nice and new. What her daughter didn’t realize was that the old mattress housed her mother’s life’s savings. Cash padded its interior which amounted to a million dollars. There are apparently still people out there who literally keep their money in their mattress (there are much better places to keep your money safe). Although I scratch my head wondering a few things:

• How do you know when you’ve got a million dollars stuffed in your mattress? It seems hard to account for that much money.
• Can a mattress truly house all those bills?
• Was the exchange rate taken into consideration? $1 million is equivalent to 3.928 million new Israeli shekels. Or do people store their life’s savings in dollars? Maybe.
• When the daughter tossed the bed by the curb, didn’t she notice just how heavy it was? Lugging down a million dollars to the garbage heap just sounds like it would be so…. heavy.

To gain some idea about what exactly was thrown in the dump, let’s visualize a million dollars here:

Image from the Huffington Post.

Could you really drag a mattress with this much money in it anywhere? You can read the details of the story here.

You’ll find more stories about money in this great list of articles from my blogging colleagues:

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• Carnival of Personal Finance
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One Million Dollars Down The Drain

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I know that a lot of you are sick of hearing about the Madoff scandal. I certainly am. I just wish they’d resolve his case already and make him pay his countless dues and debts to his riches-to-rags, hapless victims. But I can’t help but revisit the whole story after I stumbled upon concrete details of how Madoff lived.

An Outrageous American Express Credit Card Bill

While many of us are struggling to pay off credit card debt, others are enjoying unlimited use of their credit cards. ABC News reports just how hard Bernard Madoff, his family and cronies decided to live things up with funds from their investors. You can see the evidence preserved in a credit card bill from a company business platinum card which Ruth Madoff, Bernie’s wife, decided to use at her discretion. Check out her January 2008 bill from American Express:

How This Amex Credit Card Bill Came To Be

How about I try to explain where this credit card bill came from.

I think this whole story emphasizes a few interesting things about people and their behavior towards money. When you feel like you’re using someone else’s money, or imagine money growing on trees, you begin to experience an overconfidence and in some cases, even a delusional sense of invincibility that makes you feel that

(a) you may be above the law
(b) you should be entitled to anything and everything
(c) your appetite for consumption deserves to grow in line with your bank accounts.

I experienced this strange effect of financial overconfidence first hand, albeit in a transitory and much smaller scale during the dot com boom. That was when we experienced a glut in IPOs and witnessed the emergence of well funded companies like the Silicon Valley startups I had once been part of. Deserving or not, many people were beneficiaries of this wild economic boom; its effects extended beyond the material as this dot com bubble had a hand in strongly altering the attitude and behavior of those who lived in the thick of it.

For many (except perhaps for the most serious tightwads among us), our relationship with money and our financial psychology shifts once we feel that there is easy and fast money to be had and used. For those swimming in dough, it becomes extremely likely that you’ll readjust your living conditions accordingly, if not now, then eventually. So a credit card bill of 6 figures in a month? That won’t be so shocking in such circumstances, when people become accustomed to the good life.

This of course doesn’t change the fact that this matter is ridiculous on so many levels. Granted, this credit card bill came to light before the massive financial crisis and recession hit; but it still remains as one that was going to be paid using other people’s money (through illegal means).

So here’s a question: do you think that if you ever found yourself living high on the hog, that you’d ever change your lifestyle so much so that you’d find yourself on the other end of a credit card bill like we just showcased here? While it’s something we may not feel compelled to justify or even admit to a public audience, it’s something we may want to be honest with ourselves about.

An Amex Credit Card Bill You Won’t Believe

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More financial bailout drama. How are we navigating the worst economic crisis since the Great Depression?

The AIG Outrage: Where Are Your Taxes Going?

If you’re like me, you must’ve winced when you heard of the latest news surrounding AIG and how they’re funneling some of their bailout money towards employee bonuses.

With untold billions of dollars having gone to shore up the insurance giant AIG (American International Group), we taxpayers have the right to know what was done with that money and who it benefited the most. Tens of billions of those dollars have already passed through AIG to its derivatives trading partners, shielding them from losses as per news reports.

When asked to identify the beneficiaries of the bailout, the Fed wouldn’t give out names, saying in effect that nobody would do business with AIG if any names were revealed. Hogwash! If the business is above board and ethical, then what’s the problem? Well, AIG finally caved under pressure and has produced the list of recipients of their bailout money. More in this video.

We’re Not Paying For Bonuses, They’re “Employee Retention Awards”

Just the other day, we published a post on investment bankers with Wall Street jobs who were defending their salaries and big bonuses. Well here we go again: AIG has already received a total of $180 billion of taxpayer cash to avoid a collapse. Yet they insist that they need to honor contractual obligations to employees who were promised huge bonuses. The insurer had plans to pay about $165 million in bonuses by today, though some payments were reduced after Treasury Secretary Timothy F. Geithner intervened.

They could have taken the ethical and moral position here by deciding to scrap or defer their bonus program and to cap executive pay. But alas, greed rules!

We, the taxpayers, already own 80% of the company and yet, its board of directors still plan to fork over a ton of money! It’s beyond belief. Why don’t we just fire the whole group of executives (after all, we are the boss) and replace them with a fresh batch of graduate students just out of business school? I can’t see them doing any worse (and they just might do better) than those cynical old men who caused the crisis in the first place.

This video about AIG bonuses will get your goat:

Imagine this: 168 AIG employees are scheduled to receive payouts that range from $92,500 to $4,000,000 so that they stay with the company for ONE more year. Why doesn’t AIG call their bluff and allow them to leave? And how ridiculous is this, when unemployment rates are soaring and people are struggling to find jobs in this environment? Those who are struggling financially are the very people who are funding these outrageous bonuses via taxpayer dollars!

Small wonder that Time named Joe Cassano (insurance executive with AIG) as one of the “25 People To Blame For The U.S. Financial Crisis” and that CNN also included him in their “10 Most Wanted Culprits of the Collapse”.

Your Insurance Policies and Annuities With AIG

If you’re doing business with AIG in some way related to its insurance unit, don’t worry, your benefits are fully protected. Even if an AIG holding files for bankruptcy, the subsidiary that sold you your life insurance policy will continue to operate normally — this is according to InsureMe.

Also, you’re protected by your state’s guaranty fund. There is at least one in every state and they function pretty much like the FDIC for bank deposits. So do not panic!

Note as well, that if you have annuities with AIG through Vanguard, you are protected. According to Kiplinger’s:

For the annuities, the AIG life insurance companies hold substantial assets to back their payment obligations to the Vanguard Lifetime Income Plan fixed annuity contract.

So if you are thinking of pulling out of your life insurance with AIG, consider the financial consequences — the fact that you may have to pay up for cancellation penalties, surrender charges and higher premiums as an older customer, not to mention those commissions to new insurers. So think carefully before abandoning AIG at this time (even though they’ve made you angry enough to want to desert them!).

Should You Become An AIG Shareholder?

As of last week, you could buy one of AIG’s shares on Wall Street for $0.50. Yes, 50 American cents. It plummeted to half a dollar from a dizzying height of $49.50 before its shady deals were uncovered by negligent federal agencies.

You may be surprised that it’s actually crossed my mind to consider the possibility of buying some very cheap stock from a giant company that’s supported by our taxes. Then again, a part of me feels aggravated enough to stay away from AIG as far as possible, at least, until their controversy (scandal) boils over and until they restore the goodwill they’ve lost. I just don’t know how many people would have the stomach to “buy low”, or would find the desire to help out a company with such a tarnished reputation in the eyes of the public. Does it make sense to be an AIG shareholder right now?

Employee Retention Bonus Program Paid With Your Taxes! Thanks AIG.

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Don’t get conned when you’re hunting for sales and bargain shopping online. Here’s how to find out if the deal sites you’re dealing with are on the up and up.

SVB: I got to know Joe Wallace, the editor of Cheap Today, a shopping site, who’s impressed me with a lot of his online bargain shopping experiences, tips and tricks. Joe is in love with finding bargains, but has a particular love for deals on gadgets, electronics, and DVDs. Some call this an obsession; he prefers to think of it as a way of life. I’d like to thank him for his contribution to our site today.

In our current economy, holding out for the hot bargain is a way of life. Every retailer in America is selling their wares at between 40% and 75% off the regular price. Not all at once, to be sure — the way retail works includes putting some really tasty product — a home stereo, expensive jeans or your favorite TV show on DVD — on sale at a deep discount in hopes that customers will also pick up a few items at the regular price. That’s standard operating procedure, but now electronics sellers, fashionista shops and home improvement centers have upped the ante, with bigger sales, more enticements.

As the editor of a deals site, it’s my job to find all these huge sales and deep discounts. I mention this for two reasons. I see this stuff all the time, so I run into a lot of deals that turn out to be non-starters because of high shipping fees, discounts that are just too low compared to good sales, and stuff that nobody wants. I also come across the occasional dodgy site that doesn’t look quite right.

These sites LOOK like ordinary retailers, but they’re not. They are credit card harvesting schemes designed to do one thing: part you from your money. Here’s how some of them work. You find a site that promises cheap deals on big ticket items and everything under the sun. They take your credit card number and pretend to fulfill your order, or fulfill it badly. When you try to contact them to get a refund or make a return, they just never get back in touch.

In the same way that eBay.com has a set of built-in risks for those who don’t know how scammers try to game the system, shopping for bargains online also has a few pitfalls to avoid. But how do you spot the warning signs that you’re leaving Bargain Country and driving into the heart of Scam City?

Online Bargain Shopping Pitfalls: Signs You’re Getting Conned!

Warning Sign #1: EVERYTHING Is On Sale.

When you find a deal site you’ve never heard of before, take a look at the volume of deep discounts they offer. Remember how the retail game works: retailers put some tempting items on sale while keeping some products at the usual price. Look in any grocery store, big box retailer or online vendor and you’ll find this principle at work. So question any site that offers ALL its wares for impossibly cheap prices. It’s not necessarily the kiss of death, but it’s definitely something to keep your eye on. This becomes more of an issue when combined with any one or more of our other warning signs.

Warning Sign #2: Shoddy Design, Badly Written Copy, Amateurish Presentation

Let’s face it, many scammers aren’t that bright. If they were, they’d be busy doing something better than trying to cheat you out of your hard-earned cash, right? One scammer profiled on a prime time network investigative news report couldn’t even spell Barack Obama’s name properly.

Was it any shock that “vendor” was hawking fake Obama autographs? Beware the site that just doesn’t look like the professionally designed retail sites you’re used to. And though many vendors do sell legitimate goods and services with a “Web 1.0″ presentation, even some of these retailers may have a bit of spit-n-polish on their sites.

Warning Sign #3: Restrictive or Complicated Return Policies

Check the fine print on any new online retailer or bargain clearinghouse. What is their return policy? Some scam sites don’t even have one listed. Never purchase from a site that doesn’t have a clearly stated return policy including what to do if your order is dead on arrival, broken in transit, defective, or otherwise unsatisfactory.

Warning Sign #4: No Contact Information

This is a HUGE red flag. In my own work, I refuse to use any online vendor that doesn’t list a contact phone number. They may do everything else correctly — listing a contact address, e-mail, hours of operation or even a “live chat” function, but if they don’t have a contact telephone number, our deals site simply doesn’t use them. If you can’t speak to a live human, don’t bother ordering from that company. The risk is too great.

Warning Sign #5: Bad Results on Google

Before I commit money, I like to do a bit of homework on new vendors, online retailers, landlords, publishing houses, you name it. What happens when you Google the name of that groovy new deal clearinghouse you just found? What about when you Google “Joe Blow’s Electronics Emporium and Puppy Mill” along with the phrase “scam” or “ripoff”? I discovered a notorious internet scam running on one online company using this tactic. Use this with caution — because chances are, you’ll find search results claiming rip-offs and scams even with established, big box retailers (big corporations can attract many a disgruntled customer). But when dealing with a no-name company, this search tactic can be pretty effective. Customer reviews can tell you a lot about how trustworthy a particular site may be.

As always, let the buyer beware. Keep your eyes peeled, do your homework, and always know the terms and conditions before you purchase from ANYBODY.

Online Bargain Shopping Pitfalls: Top 5 Signs You’re Being Conned

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Pondering some grim realities of the worst economic crisis since the Great Depression: why do some of the super rich find themselves so troubled? What type of problems and terrible millionaire secrets do these people harbor?

The financial crisis is coming to a head. More and more people are gravely affected, but what I don’t understand is why it seems to be the case that the richer someone is, the more psychologically vulnerable they are to this downtrend. I would have expected the extremely affluent to be isolated from any financial meltdown. Why would someone probably still worth gazillions of dollars decide “it’s all over”?

As an avid student of psychology, I wonder what makes your typical billionaire tick (I love studying crime and pathology too, but that’s another story). When we think of money in absolute terms, the mind boggles as we try to wrap our minds around the level of wealth some people achieve. But the truth is, the rich encounter many pressures. Pressures that are serious enough that some of them decide that the only way out is to hasten their own demise. An old post I wrote some years ago about how rich neighborhoods can be deadly, speaks in that vein.

Deep, Dark Millionaire Secrets of The Super Rich and Famous

The billionaire body count has been rising over the last few weeks. The latest casualties of the financial crisis are some truly big names: a Madoff scam victim (hedge fund adviser and investor), a German billionaire who fell a few notches down on Forbes’ rich list, a real estate power broker, and one of our local money guys: a Silicon Valley investment manager.

It’s sad, and maybe even unthinkable, that the German billionaire decided that life wasn’t worth living with $9.2 billion, despite the fact that his percentage loss is not as bad as most people’s (in fact, his losses equal mine in terms of percentages):

He was number 94 on the Forbes list of the world’s richest people. He had fallen from number 44 on the Forbes 2007 rich list as his fortune declined from $12.8 billion to $9.2 billion in 2008.

It may not seem like it makes much sense why people would commit these acts, given how fortunate these victims are in so many other ways (seemingly an understatement for most of us). But maybe it’s not all about money. These tragic events happen because someone psychologically vulnerable meets with an unfortunate trigger. In this case, asset market deflation to a massive degree was that unwitting trigger.

Pondering the Big Problems of the Super Rich

Maybe it’s not just about being unable to accept personal loss; I’ve often read about how these fund managers feel the grave responsibility of being the cause of financial loss for others, as well. Hypothetically speaking, these people may have been headed for the same fate, regardless of what stressor provokes them to this end. We don’t know. All we know is that these people were vulnerable.

I reiterate the point that this may not be about money at all. Obviously, people with still so much money to spare (I’d assume) have decided that whatever losses they were experiencing weren’t worth the time and effort to recover from.

Ironically too, the same characteristics that give certain people the ability to achieve such astounding wealth are the same characteristics that can cause their devastation, when things don’t go their way. I try to explain the fickleness of wealth and money preservation across generations in this manner. Why is it difficult to retain fortunes across generations?

What I’d like to get out of these stories is this: the lesson that money can’t make us happy. That happiness stems from our own selves. And to increase our chances of staying sane and happy, let’s treat money as a tool, simply as a means to secure our family’s future. When money begins to represent something else in one’s life — something deeper and seemingly more important, like power, or status, or the culmination of one’s self-worth — then happiness will most likely prove elusive.

Maybe the rich aren’t so lucky after all.

Millionaire Secrets of the Super Rich: The Big Problems They Keep

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