How do Canadians react to sudden riches?

A study looks at how people’s financial priorities and goals change in light of a sudden windfall

By Leo Almazora

Dec 11, 2018

At first, one would think that suddenly coming into wealth and riches would be reason for celebration. But as a new poll shows, money isn’t the answer to all of life’s problems; in fact, it comes with problems of its own.

In a survey conducted earlier this year, BMO Wealth Management asked Canadians age 35 years old and older what their top three current financial goals or priorities were. A majority of the respondents (55%) said they were concerned about achieving lifestyle goals in retirement. The next most-cited priority was increasing wealth (49%), followed by protecting their current wealth (40%).

But when asked to name their goals and priorities if they were to receive a sudden financial windfall, just around two in five respondents (38%) said they’d likely have the same ones. Among those whose answers changed, the most frequently cited goals were to share their wealth with family, friends, or charitable causes (64%) and paying off their debts (64%). Almost half (47%) said they’d invest their new wealth in stocks, a business, or property.

The findings may become relevant over the coming years. According to this year’s World Wealth Report by Capgemini, some $1 trillion in personal wealth — roughly 70% in the form of financial assets — is forecast to be transferred to a new generation of Canadians by 2026.

“Regardless the source of wealth, receiving a substantial sum of money unexpectedly carries sociological and psychological implications,” said Chris Buttigieg, director, Wealth Institute, BMO Wealth Management. “While the significant investment opportunities can be exciting, be cautious of psychological issues associated with sudden wealth syndrome.”

Citing a California-based psychologist who coined the term, the BMO report explained that “sudden wealth syndrome” is used to describe the psychological issues associated with the unexpected acquisition of wealth. Issues faced by the unexpectedly wealthy may include a sudden tendency to overspend, growing suspicious of those around them, and making poor decisions that lead to personal conflict and financial ruin.

The challenge of coping with sudden wealth may not be lost on Canadians. The BMO survey asked respondents to identify the single most important concern they would have about the impact of a hypothetical windfall on their investment and retirement plans. In response, 46% said they would need to seek advice on how to invest the money wisely.

Other respondents asked how it would change their retirement outlook (18%), whether they could or should stop working immediately (12%), and how they could make sense of the many options sudden wealth would open up (7%).

From an estate and legacy perspective, the largest number of respondents said they would consider how to help others (31%); nearly a fifth said they’d ponder how to create a legacy with the money (18%); and an equal proportion (15%) said that they would think about how to avoid family conflict over the money and how to minimize the taxes on their estate.

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