Americans Need New Financial Role Models

by Odysseas Papadimitriou on October 10, 2012

 

“The first time I got a check and I seen the chunk out of it … that’s when I found out about taxes, that’s when I found out about everything.”

- Andre Rison, NFL wide receiver 1989-2000

 

We all know that financial literacy in the United States is somewhat lacking these days. The Great Recession helped bring this unfortunate fact to light, revealing that people have been habitually spending beyond their means, engaging in risky borrowing and investment practices, and failing to even acquire the requisite personal finance know-how along the way.

The truth, however, is that we didn’t really need a historic downturn to come to this realization. Some of our society’s biggest idols – professional athletes – have been serving as the poster children of financial illiteracy for years now. In fact, one could even make the case that these “role models” have helped foster our pay-for-it-later mentality.

As part of its critically-acclaimed 30 for 30 documentary series, ESPN recently examined the culture that leaves 78% of former NFL players bankrupt or under financial stress within two years of retiring from the league and 60% of NBA retirees broke within five years, according to Sports Illustrated. The film, which is titled Broke and directed by Billy Corben, uses interviews with current and former players as well as sports journalists to discuss the unique pressures placed on extremely famous and often extremely rich young ball players.

Not surprisingly, a few of the biggest obstacles preventing athletes from managing their money responsibly are their age, financial inexperience, and the shock of going from being strapped to flush overnight.

“The term of the trade is ‘sudden wealth effect.’ It’s not unlike someone who wins the lottery.” New York Times columnist Joe Nocera said in the film. “They’re 21 years old. You know, what do you expect? Hand somebody at that age and that station in life $4 million, and they’re going to want to spend it. That’s completely natural and understandable.”

Think about it this way: If you give your son or daughter $100 when they’re young, they’re probably going to go blow it all on candy and toys simply because it’s their first time having that kind of money and they don’t know what else to do with it. That’s kind of how it is with professional athletes; things are just a lot more complicated, given how much there is at stake and the fact that the whole world is watching.

“Like most college students, athletes come out of college financially illiterate,” said Reggie Wilkes, a former NFL linebacker who later became a financial advisor. What we see is therefore lavish houses, fancy cars, and shiny jewelry. We also hear about athletes opening restaurants, founding music labels, and helping out friends and family from their hometowns with bills.

The fact of the matter is a large proportion of professional athletes come from socioeconomically-disadvantaged households, which contributes both to their expenses and lack of financial awareness.

“The Oakland A’s paid Ricky Henderson a million dollars in a single check,” ESPN sports business analyst Darren Rovell said in the documentary. “And sometime later, the A’s management had realized that that check had not cleared, so they called up Ricky Henderson and they said, ‘Ricky, did you cash the check? It doesn’t show up.’ And he says, ‘No, I framed it.’”

Unfortunately, such a gaffe doesn’t even come close to being the most egregious money management mistake that pro athletes have been known to make. Perhaps more worrisome is the tendency to forgo complete financial control to a “trusted” advisor or friend. High-stakes gambling has got to be up there too, as does serving as an angel investor for a friend’s “promising” business venture.

When you further consider just how brief the average professional athlete’s career is – it’s 3.5 years in the NFL, 4.8 years in the NBA, 5.5 years in the NHL, and 5.6 years in MLB – it’s not that surprising that the following high-profile athletes have gone bankrupt after making millions throughout their careers.

  • Mike Tyson, boxer: Lost $300-400 million via extravagant spending and a pricey divorce
  • Evander Holyfield: Lost $250 million (and an ear, of course) through failed business ventures (and a bite from Mike Tyson)
  • Curt Shilling, MLB pitcher: Lost $50 million on a failed video game company
  • Antoine Walker, NBA forward: Lost $110 million on failed real estate ventures
  • Michael Vick, NFL quarterback: Lost $130 million after a high-profile animal abuse incarceration
  • Lawrence Taylor, NFL linebacker: Lost $50 million via drugs and escorts

Ultimately, this goes to show how athletes, despite their prodigious talent and amazing discipline, are actually somewhat disadvantaged financially and certainly don’t make the best financial role models. Sure, there are exceptions such as Magic Johnson, who earned $20-some million during his playing career and is now worth an estimated $500 million, thanks to his strong business acumen. But even considering Magic’s case and the fact that athlete salaries are certainly out of whack with what you and I are exposed to, the issues at hand should certainly resonate.

Athletes may not be living beyond what their current paychecks can sustain, but many are both overstepping their future earning potential and failing to understand the importance of saving in order to invest in low-risk income generating assets (e.g. savings accounts, rental properties, and dividend stocks of large corporations). We should all take note and learn from their mistakes by securing our financial future no matter how much or how little we bring in.

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