As football season officially begins this month, financial windfalls and how they impact our psyche are top of mind.

Many professional athletes earn more in a year than what many people see in a lifetime, yet they may still end up in dire financial straits. A National Bureau of Economic Research report showed 15.7% of NFL players file for bankruptcy within 12 years of retiring on average.

Athletes aren’t the only ones challenged by such a shock to the system. From young professionals experiencing an IPO payday to a grieving loved one receiving inheritance, windfall experiences run the gamut.

Advisors can play the role of financial quarterback in supporting these clients in managing the emotional aspects of sudden wealth.

Take A Timeout
Most people perceive a sudden windfall as an inherently good thing. However, it brings with it personal and financial challenges, and decisions that can be perceived as intimidating, especially for the newly affluent. That’s why experts at the Sudden Wealth Institute recommend a “decision-free” period for windfalls, to allow the emotional roller coaster of joy, guilt and euphoria to fade.

NFL legend Marshawn Lynch is a great example of this in action. The Oregonian reported that Lynch didn’t spend the millions he made from league contracts before his retirement, instead living off the substantial paychecks from endorsement deals and the sale of “Beast Mode” merchandise. He famously offered young NFL players financial advice in 2020: “Take care of your chicken,” aka money. 

Happy Versus Unhappy Money
After a client has had that cooling off period, you’ll need to watch for mental accounting, a concept associated with economist Richard Thaler. We assign subjective value to our money in ways that are often less than rational. Research published in the Journal of Marketing Research in 2009 takes this a bit further, putting forth the idea that money’s “affective tag” influences how it’s used.

Pride-tagged money—say from a bonus at work—impacts us differently. Also known as “happy money,” it is the reward for your efforts and feels more “earned” than other windfalls, and that influences what we do with it. Research shows we’re more likely to spend these dollars on ourselves versus others. One example is Shaquille O’Neal, who spent his first million dollars in a single day on cars and jewelry.

Contrast that with “surprise money,” such as a large check from a relative on your birthday or gambling winnings. One of the most relatable windfalls is a tax refund, which falls in this category. When these dollars hit our pocket, it can feel like an invitation to splurge. You might also feel guilt and spend the money on others to relieve that feeling.

Finally, there is “unhappy money,” such as a life insurance settlement that reminds you of a loved one’s passing. We’re more likely to spend this on utilitarian or even virtuous purchases to dampen our negative feelings about a windfall, research shows.

A Personalized Approach
We’ve been discussing how mental accounting, a behavioral finance concept, affects money management. You should also add in financial psychology, which speaks to how a client’s relationship with money was shaped throughout their life, as well as how that influences their life and finances today. With an understanding of a client’s psychology, it’s easier to come up with strategies to manage stress and safeguard well-being.

eMoney research shows that “understanding their financial stress” is important to the vast majority of clients (72%) and plays a strong role in personalizing the financial planning process. Having a firm grasp of financial psychology can help an advisor lead conversation to find areas where a particular client may need help. If you’d like to polish your skills in this area, read my article 4 Ways to Make Clients More Comfortable Talking About Money.

As the quarterback of a client’s finances, keep in mind that you can also bring in special teams to support this aspect of personalization. From referring to a therapist to consulting with one in-house, there are many options.

Whether you serve athletes or other clients dealing with windfall money, or merely aspire to, a greater understanding of behavioral finance and financial psychology can help you further personalize your planning process.

Emily Koochel, Ph.D., is the head of financial wellness programs at eMoney Advisor.