By Vasilia Polycarpou, The Sports Financial Literacy Academy
When thinking about the lifestyle of professional athletes, extravagant spending, lavish homes and luxury cars usually come to mind. With lucrative multi-million-dollar contracts, the impression of infinite wealth can be created. However, this is only an illusion, since there are numerous examples of famous professional athletes who found themselves breaking the bank, due to financial struggles. So why do so many athletes face financial struggles?
To begin with, athletes’ incomes can fluctuate, being rather unpredictable. Athletes usually have a limited earnings window, making most of their earnings at a young age, meaning that they need to accumulate wealth that will last beyond their playing years, within a short period of time, relative to other professions. This window can become even smaller with potential injuries which could end their careers unexpectedly. These could easily lead to financial instability if the right measures are not taken by the athlete early on in their career. A great example of an athlete who was forced to retire early despite his promising talent, is former NBA player Brandon Roy. Chronic knee injuries caused him to retire abruptly at the height of his career.
The sudden wealth effect and its consequences can also prove to be financially damaging, with athletes’ spending habits, lifestyle choices and financial behavior shifting towards excess and short-term gratification, as opposed to a long-term way of thinking. Athletes’ desire to showcase an image of financial success through spending, in addition to the lack of ability to recognize the importance of proactive financial planning for the future, can lead to financially devastating circumstances for the athlete.
Another source of pressure which can deplete athletes’ savings, is financially supporting friends, family members and people who have been part of their sports journey, without setting appropriate boundaries. Financially being there for your loved ones and showing your appreciation is admirable, however, this should be done carefully, so that it doesn’t get out of hand. A cautionary tale about how generosity can be exploited, is that of former NBA player Antoine Walker who ended up filing for bankruptcy due to financial mismanagement. A major factor contributing to his financial misfortunes was his great willingness to financially assist a large number of family members and friends, without setting any limits. Instead, he made sure he fulfilled their every financial request, at his own expense.
Post-retirement transition and the struggle to find a new purpose outside of sport, is not just emotionally overwhelming, but also financially if a well-defined plan for post-retirement life is not set up in advance. However, setting up such a plan requires among other things, knowledge of basic financial principles. With athletes being focused and dedicated to their sport, lack of basic financial literacy for wealth accumulation and management is quite common, leaving them financially vulnerable. Limited financial knowledge and consequently critical thinking on economic matters, can lead to poor investment decisions, as well as a high probability of being taken advantage of by financial predators. With high divorce rates, athletes also need to have the knowledge to protect themselves and their children by seeking appropriate agreements with the help of experts. Therefore, lack of financial literacy can prove to be extremely damaging to an athlete’s bank account.
All in all, the desire to seem accomplished to others, through careless and excessive spending, living in the moment and constantly trying to please loved ones, without planning for the future, can lead to fortunes being drained faster than they are earned. The key to shifting from this sort of mindset can be found in financial literacy, seeking help from advisors and trusted professionals, as well as learning to set boundaries and embracing a long-term, proactive mentality.
The Money Smart Athlete® Blog is established and run by the Sports Financial Literacy Academy® (SFLA). Through its education programs, the SFLA has the vision to financially educate and empower athletes of all ages to become better people, not just better athletes. For more information on our courses, our SFLA Approved Trainer Program®, and how they can benefit you and your clients, please get in touch with us at [email protected].