Celebrities and Money

If you're new here, you may want to subscribe to my RSS feed or email. Thanks for visiting!

When Michael Jackson died, the news that shocked me most was the size of his debt: more than $400 million. His debt hadn’t been a secret, of course, but the size of it was astonishing.

News of celebrity debts, bankruptcies, and tax auctions has always left me with a feeling of moral superiority and disdain. I mean really, when someone makes more in a day than I make in a year, how can I feel sympathy when they can’t manage their money?

But I started to wonder why financial problems run so rampant among celebrities. I spoke with a few financial advisers who have experience with high-profile and high-wealth clients, and they all agreed that celebrity money mistakes can usually be traced back to two things: lack of knowledge about money and reliance on the wrong people.

Lack of Knowledge

Because money comes at newly discovered actors, singers, and athletes so fast, said career coach Deb Robins, “they overspend.” It’s “what I call the ‘kid in the candy store’ syndrome,” she continued. “The world has suddenly become their oyster, and they’re going for it.” Before she began coaching, Robins was a Hollywood producer, so she has seen her share of rags to riches Hollywood stories that ended with stars going broke.

Ryan Pinney, of Pinney Insurance Center, has an example of this overspending. One of his clients, a professional athlete, just signed an $8 million, four-year contract. He immediately went out and “purchase a home for his family (mother and siblings), a home for himself, and a Ferrari. Total cost of all purchases was over $4 million. The problem was that his contract was only guaranteed for 4 years at just over 2 million per year. In less than 3 months he has already spent half of what he is expected to make over the next 4 years. That assumes that he plays well, isn’t cut, or hurt. If he continues to spend at this rate, he will quickly outpace his earnings.”

This athlete exhibits an emotional response to the idea of having a lot of money rather than an understanding of what his cash flow will actually be. It feels good to drive that Ferrari off the lot and to be able to provide a nice home for the family that stuck by you and scrimped and saved so you could get to the point where you could pay them back. But, what do you do if you are out of a job for any reason?

Financial adviser Samuel N. Asare, of the Laser Financial Group, has counseled people from all walks of life, and he believes that the key is to have a plan. Many times, people “think that purchasing so many homes, for instance, is good, … without a clear plan of how those extra homes are going to sustain themselves over the years.” If you focus only on acquiring things, Asare continued, you “end up with a bunch of stuff that only creates a huge fixed cost. But, also with fixed cost comes on-going variable costs. That is what gets most people in trouble.”

The Wrong People

Education could solve this problem of perception. When asked if the sports leagues or actors’ unions could provide education to their members, Pinney responded that they “already offer tips, tools, and access to financial planners in an attempt to help out. The problem is that they can’t mandate their use nor do they have or want oversight of the process due to liability concerns.” The solution for the newly rich, he continued, “is to find a qualified financial professional that specializes in high-net worth clients. They need to have documented experience and should have certifications and affiliations that demonstrate they expertise and professionalism.”

Unfortunately, Pinney said, many celebrities “come from humble if not poor backgrounds.” And they choose to have family members and friends represent many of the financial needs, even though their family and friends don’t have specialized training in money matters and likely come from the same less affluent backgrounds.

Even if friends and family don’t mismanage funds or give bad financial advice, there is the risk that they, too, will steal from their unwitting relatives. Dane Cook is the most recent example of this. Cook’s half-brother and his wife are accused of stealing $11 million from the comedian.

What Can We Learn?

Asare said the problem is not the amount of money that people have, but their perception of money. “I teach that everyone is a container,” he said. “Flawed perception puts holes in that container. If you fill a container that has holes at the bottom with water, it runs out. Even with LOTS of water, it still drains out, although it may take a little longer.”

Celebrities need to take responsibility for managing their money, get the right personnel working for them, and use reason when making decisions instead of emotion. They need to remember that income changes, and they need to plan for the future not just spend today.

And we normal people could follow this same advice and be doing a lot better for ourselves, too.

2 people like this post.

Like 

• TV Is Out of Balance There was a time when the entertainment arm of the big networks was seen as the patron of the educational and informational arms. The money made on primetime shows was used to fund the important things, such as educational programming for children or the news. Now, each arm of the......
• Weary (A Rant) After all of the hullabaloo of the past week about Mackenzie Phillips and Roman Polanski, I'm tired. I'm tired of hearing about incest and rape. I'm tired of apologists trying to ignore the fact that these crimes were committed. Is it okay that John Phillips coerced his daughter into a......
• Some Interesting Tidbits Who is the most appalling pimp I mean show biz mom out there? Is it Lynn Spears who leaves her knocked-up 16-year-old in Louisiana while she apparently treats her other daughter's mental illness by taking her shopping for jeans? Or is it Dina Lohan, who sends her 14-year-old daughter to......
• Does David Letterman's Sex Life Matter? Not to Me. On last night's Late Show, David Letterman spoke of an extortion threat he had received and the sexual relations he had with female staffers. This morning, the news and entertainment media were abuzz at the thought that Letterman had been promiscuous. Taylor, Victoria, and Kenny on Cosmo Radio's morning show......
• Thoughts on the new fall season so far Perhaps my sights were set very low, but I have been loving my little teen soaps so far this season.Two episodes in, Greek has been fun to watch, full of pop culture references, and even full of life lessons--sometimes you just need a new R.A. to remind you why you......

• So What Does A Man Want In A Woman... by Tessa Radley, guest blogger and author of Millionaire Under the Mistletoe. I’ve been thinking a lot about heroines lately....
• Q & A with Doug Fuller, Prosper’s Vice President of Operations This is a verbatim reprint of a Prosper forum annoucment... Doug Fuller, background: For over two decades Doug Fuller has been...
• 67 And Bankrupt: Are The Kids To Blame? The following post is from Neal of WealthPilgrim.com. After reading the article, be sure to sign up for free at...
• Yard sales with a purpose Today we went to a neighboring town to help friends with their part in a community yard sale.  We "donated"...
• Book Review: Never Romance a Rake by Liz Carlyle By: Marcia, guest reviewer Most Regency Romances portray life in this period as opulent and sensual.  And it was, but...