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Why the rich go broke — and how you can avoid a similar fate


In the summer of 2019, NFL running back Adrian Peterson made headlines when he found himself in court because he couldn’t pay his debts.

This is a football star who it is estimated will make close to $100 million in his career. So it was surprising to some when Peterson was reported to be unable to pay millions in debts.

But it’s not a unique story. Over the years, celebrities such as Nicolas Cage, Kim Basinger, Michael Jackson and MC Hammer have made headlines by falling on financial hardships.

“What can be even more shocking is hearing about lottery winners going bankrupt,” said Matt Sheridan, senior lecturer in the Department of Finance at Fisher College of Business. “How does someone who won the Powerball go bankrupt? They had all the money in the world, right?”

So how does that happen? How does someone go from being a multi-millionaire to broke?

When you feel you have a ton of money, you live in the moment and think it’s going to last forever. We are a society built off consumption. It feels better to spend today than save for tomorrow. That can lead to bad financial decisions.

Money is put into depreciating assets such as cars. And then every family member comes out with their hands out. Many will say money was stolen or misappropriated. In many of these cases, it’s not solely that people make bad financial decisions, but that they do not know the quality of financial advice they are receiving.

A lot of financial advisors are not fiduciaries. Legally, a fiduciary must act in your best interests. A large percentage of financial advisors are salespeople and are held to a suitability standard. Most people don’t realize that an advisor held to a suitability standard needs to ensure only that the investment decisions are suitable for the client’s situation and does not require that the investment advice is in the client’s best interest.  

Is there anything the rest of us can learn from these stories?

They highlight how big of an issue financial illiteracy is in the United States. 

It would be nice to have financial literacy classes required in high schools. I definitely think it should be required at a four-year college, especially with the fact that tuition has been increasing faster than inflation, and graduates are coming out of college with an average of $30,000 in student load debt and that’s trickling down to society.

So this is a societal issue?

We could improve a number of economic issues and reduce a lot of stress with better financial literacy. A leading cause of divorce is due to money problems. The number one cause of bankruptcy isn’t losing a job, it is actually medical bills. These issues show that the majority of Americans are not financially prepared for negative economic surprises.

There are stats that show the average American can’t handle a $500 emergency. That’s a broken windshield. In addition, many of our financial institutions directly profit from financial illiteracy.  Many of our consumer banks have become high-pressured sales organizations, and we have a system that allows for predatory lending (i.e., payday loans).

In the absence of those institutional financial programs, what do you recommend?
  • One, live below your means.
  • Two, make sure you budget. Most people equate that with a four-letter word, but it’s a strategic plan — you’re telling your money what to do. Living within your means is important.
  • Three, the phenomenon of wage creep — of whatever you make you’ll spend — is real. Let’s say you make $50,000 a year and are living paycheck to paycheck and you think, 'If I could just make $60,000 a year, that would solve everything.' Then you get to $60,000 and you become accustomed to that and you’re still in the exact same position where you’re month-to-month.

Some of it is common sense, but unless you walk through how the brain thinks about money, it’s easy to forget the advice. Wage creep, keeping up with the Joneses — these things are baked into us as human beings.

What are some strategies to get ahead financially?
  • Automating savings — save 15 percent of your pretax dollars. That can be put into retirement accounts. You can set it up so money is pulled out pretax and never hits your bank account.
  • Have an emergency fund separate from your main checking account. If you’re single, have enough money to cover three to six months of expenses; if you’re married with dependents, nine to 12 months. That way if an emergency happens, you can protect your retirement savings and avoid high-interest debt.
  • Focus on getting the big purchases right. Debt is a serious issue in this country — breaking it down among auto loans, mortgages, student debt, credit cards — and what makes the biggest difference is getting the big purchase right. Your goal should be to get the lowest interest rate possible. So for a house, you can go to and it will show which banks are giving the lowest interest rate loans and the highest for savings accounts. And that’s important. Let’s say the average house in the U.S. is $250,000. For a 4 percent mortgage, total interest is about $180,000. If you paid just 1 percent higher on a 30-year fixed loan, that’s going to cost you an additional $53,000 over the course of that loan. That’s a big deal.