The prodigal son versus the prudent investor

| Friday October 22, 2010 00:00

Imagine going to sleep penniless and waking up the next day with a few hundred thousands (or even millions) of Pula in your bank account. Your life will most certainly change in an instant because all of a sudden, you can afford things you could not before, thanks to the money that you have 'inherited' from your dead parents or relatives.

Yes, it is true that inherited money can change the lives of most individuals. But it can also attract negativity.Many of us have heard about the Biblical character known only as 'the prodigal son?'

According to Luke 15:11-14 (Quest Study Bible), Jesus continued: 'There was a man who had two sons. The younger one said to his father, 'Father, give me my share of the estate.' So he divided his property between them. Not long after that, the younger son got together all he had, set off for a distant country and there squandered his wealth in wild living...'

Other translations suggest that the 'wild living' referred to spending money on prostitutes, drunkenness and gambling.

Presumably, before receiving a share of inheritance, the young man had been a good child who obeyed his parents. But once he obtained his inheritance, he went on a spending-spree that ended with him reduced to destitution. The young man did not have a care in the world as he freely spent the money that he did not sweat for.

I recently met a young man named Charles* who reminded me of the prodigal son. When Charles' father died, he was not sure that he would inherit any money because he (the father) had been estranged from Charles' mother and siblings. However, the executors of Charles' father's estate convinced Charles' mother to sign the documents so that they could release the money to the children. In due course, Charles woke up one morning to find that he had more than P300,000 in a special bank account in his name!

To his credit, Charles decided to pay off all his debts and transferred P100,000 into his cashing account. But lo and behold, once he had paid off his debts, Charles took to endless bingeing in a wild spending spree that also picked up a mal-functioning second-hand jalopy. Having learnt of his inheritance, his friends descended on him like vultures. Feeling like a prince, he and the hangers-on caroused and cavorted wildly day and night. At one stage in the process, he entrusted one of his 'friends' with his ATM card, partly because he was not acquainted with the cash dispensing machines and partly because he was averse to taking the necessary break to go to them.

The next day, the big spender made the sobering discovery that after the usual deductions for bingeing and so forth, P10,000 was unaccounted for! To add to his woes, his car - which was always driven by unlicensed drunken drivers like himself - was lying in a garage somewhere. Today, Charles has opened a case against his ATM friend.

Says John L. Levy, a consultant who has helped many with managing their inherited wealth: 'There is a fair amount of evidence that indicates that receiving wealth doesn't always improve the lives of the inheritors.' Charles is a typical example of this.

I recently travelled by bus from Serowe with a beautiful young woman named Neo*. We struck up a conversation that started with both of us bemoaning the 'horrors' of public transport. Our conversation revealed that both of us had recently lost our cars, hence our present mode of transport. At the back of my mind, I wondered how a woman so young could own a car because I knew that with good savings, one could get a Fongkong. It would be an understatement to say that I was shocked when I learnt that Neo was returning from Serowe where she been to inspect her newly-built house. The young woman proceeded to show me pictures of the house on her phone. What is this, a confidence trickster?

What made me comfortable chatting to this young woman - a girl, really - was that she appeared mature for her age. We both talked about our personal building projects and, as her house were already completed, she gave me a few tips on how to save while building a house, which I greatly appreciated. Unlike Charles, Neo had 'fixed' her money with a bank for three months before deciding on what to do with it. She also thought that the best way to invest her money was to build a house, which is commendable. Neo also used a portion of her inheritance to start a small business of selling fashion clothing to friends and colleagues. The last time I checked, Neo was doing fine.

Says Levy of people like Neo: 'It is good news that some people who receive substantial wealth from their families do well.'

Obviously, those likely to inherit money from the estates of their departed relatives would prefer Neo's approach. However, even if you end up like Charles, there is still hope. Candance Bahr is an expert in investment. Here are and his five tips for those in dire straits because of irresponsible spending:

* Stop. Re-asses your situation to determine what is wrong. Don't beat yourself up about it. Examine the financial facts and start over.

*Establish realistic goals and spend only what you have allocated each month. Pay for the necessities first - the mortgage, utilities, etc. If you run out of money, stop spending. Do not use credit cards to tide you over until next month.

* Bring your advisors into the picture. Ask your accountant, financial planner or investment advisor to help you get your finances back in line.

* Review your progress on a monthly or even weekly basis at first. Managing finances is like going on a diet, ongoing improvements count, not the one time fix. Stick up with the programme and don't give up.

* If your children (even other relatives') money problems are creating yours, set limits for them. Let them know you can't afford to fund their every need. That will be best for them in the long run.

*Not their real names