The following is another guest post from William at Drop Dead Money. He also contributed Now Is the Time To Prepare and Honey, How Can It Hurt Just To Take a Look? He is a regular reader and commenter here at BFS – thank you, William!
ESPN showed a thought provoking program this past week. Called Broke, it was about pro athletes who went, well, broke after making more money in four or five years than most people make in their lifetimes. The minimum wage (not average) of an NFL player is close to half a million dollars a year yet 78% of all NFL athletes are broke within 3 years after retiring, and 60% of all NBA players within 5 years.
How is this possible? I took away the following five causes:
Almost every one of those interviewed told stories of spending that pops open even the most jaded eye. As athletes compete on the field, they apply the same competitive attitude to their spending off the field. “Rain” — letting dollar bills (or even hundred dollar bills) float toward a club floor — apparently was a favorite.
Here’s a mind blower: most players live paycheck to paycheck. Sounds like us, right? Until you realize the smallest paycheck is like $50,000. Every week! In some cases, it’s several hundred thousand dollars. Every week. The mind goes numb trying to figure out what to do with a hundred thousand dollars, knowing that another one is coming next week. And another the week after that.
But, when the season ends, the paychecks also end. This is no surprise to the athletes intellectually. Yet, within a few weeks of season’s end, most of them are out of money. Astounding as it may seem, few of them save enough to see them through an off-season of a few months.
Even if you make a million dollars a year, it seems, you can still live paycheck to paycheck.
How is that possible?
2. Lack of Education
Most pro athletes are recruited or drafted out of college. You know, those institutions of higher learning. In the movie The Blind Side we see perhaps the biggest part of a college coach’s job: recruiting. And what’s the biggest pitch to promising athletes? “We’ll help you go pro, where you’ll get millions.”
And yet, the hard truth is athletes come out of those institutions of higher learning with zero education on how to manage their money. Bart Scott, linebacker for the NY Jets, tells how he took his first paycheck to a check cashing joint, because he (an Economics major) had no idea what else to do did with a paycheck!
Another story told of a guy who received a signing bonus check of over a million dollars. A few months later the team’s accounting department approached the coach to ask why the player never cashed or deposited the check. The embarrassed player confessed that he had framed the check. He didn’t realize he actually had to deposit it. University education indeed.
The third reason athletes are out of money is hangers-on: friends and relatives who bombard the athlete with guilt and the inference that they are responsible for his success in life. As one guy said, his friends knew when he got paid better than he did. Like clockwork, they were there the day after he got paid, with one sob story after another.
And it’s hard to say no. Particularly poignant was Bernie Kosar, whose father would lay one heavy guilt trip on him after another, to where he just gave his dad all his money in the hopes that his dad would accept him and leave him alone. And then his dad blew all his son’s money. http://bit.ly/BK304
“I earned it. I’m the one getting hit out there. I’m the one bringing joy to all those fans. I deserve what I get.”
The human mind is a funny thing. We convince ourselves we “deserve” anything we get, even if it’s a $20 bill we pick up off the street. Where that gets dangerous is when we project that entitlement into the future: if I deserve it now, I will continue to deserve it into the future. And if I deserve it, surely I’m entitled to get it forevermore into the future.
5. No thought for the Future
Not one athlete interviewed acknowledged that they understood there would be a time when the paychecks would stop. Many of them can’t even plan for an off-season, what then about a life after pro sports?
NFL players in particular face higher medical bills than the normal population because their bodies get banged up. Yet few of them save for medical bills after their career. Leon Searcy tells how the Miami Dolphins gave him a $60,000 settlement for the injuries that ended his career. Rather than use it for medical bills, he bought a Hummer because he saw one and, “I had to have it.”
This is a sobering program, because it exposes human nature. It’s easy to sit on the sidelines and criticize the players for their stupidity, or the universities who make billions off them and don’t even prepare them for the most basic life skills.
But What About Us?
Are we falling into the same traps? If you’re reading this blog, odds are you’re “the choir” (as in preaching to the choir). So you probably don’t need to be reminded to:
1. Spend less than you make.
2. Educate yourself about managing your money.
3. Make tough stands against entitled relatives/friends (tough one, admittedly).
4. Refrain from self justifying entitlement attitudes.
5. Save/invest for the future.
Strange as it may seem, I came away with a sense of gratitude, more than anything else. “Normal people” earn more as our lives progress, and we learn along the way how to handle increases in our compensation. And when we make mistakes, they’re not disastrous for the most part.
These kids are flooded with more money than they know what to do with, totally unprepared by the universities who rake in billions off of them but leave then totally unprepared for their future. And by the time they begin figuring it out, they lose their income stream. I’m not sure I would have handled that situation any better.
Here’s the key question: at some point you will be out of debt. In a small way, you will be where these athletes were: having more money than you need in the moment. What then?
Do you have a plan for that day? If not, now is the time to start.
Crystal’s Comments: The biggest thing hubby and I struggle with is that sense of entitlement. And I really wish all pro athletes were required to take some basic financial classes when they land their first big contract. I know that some of them can be frugal, but 78% failing is not a pretty number. I’ve even written about a few that went bankrupt before. Thanks for the excellent post William!
FYI: I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year. I went self-employed in July 2011 and make between $80,000-$100,000 through blogging, professional pet sitting, hubby's reffing, and our rental home. If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!). I even have all of my favorite tools on a resource page - I hope they help you too. Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!