Lil’ Dicky shows the process of trying to make the most epic rap video of all time, but without spending much money. The entire song looks at a variety of ways that Lil’ Dicky tries to save money and avoids spending money on unnecessary expenditures “just to flex.”
Athletes become broke after retirement because of overspending, unexpected expenses, poor financial advice, but also feeling guilty about not helping others around them. One of the early tips of financial advice was to pay oneself before paying others. It’s easy to look at the purchase of houses or unexpected as something that can be prevented, but helping family and friends is something that isn’t as easy to give up.
Athletes become broke after retirement because of overspending, unexpected expenses, and poor financial advice from third parties. Because of the prominence of reporting athlete salaries, distant friends and family pitch business ideas to athletes, most of which have no knowledge of the risk involved in starting a business. Safer assets are not viewed as exciting or sexy, despite their considerable safety. One way to help secure financial futures is to seek out financial advice from professionals who are educated in the field.
One reason why so many athletes become broke after retirement is overspending, but a secondary issue is the unexpected costs associated with earning millions of dollars each year. This segment of the ESPN 30 for 30 special looks at the taxes and unexpected costs associated with earning millions of dollars per year. For many athletes, this may be the first real job they have held, which means they are unaware that they are now part of the highest tax bracket, so approximately 40% of their millions is withheld. A secondary issue is that athletes play in multiple states and countries, which means that they owe state and federal taxes in more than one jurisdiction. Because of the complicated tax situations, many athletes need a financial advisor in addition to their agents, who also take a percentage of the total income.
Young professional athletes are essentially lottery winners once they’ve signed a contract with a team. Seemingly overnight they become millionaires. One reason why so many athletes become broke after retirement is not for a lack of income, but rather a misunderstanding of needs and wants. Many athletes struggle to budget their income appropriately and don’t consumption smooth between in-season and offseason.
Common spending patterns include:
- Buying a home/car for self and family members
The issue that many athletes face is the lack of realization that most professional careers are short term, but the costs of those items have lasting impacts.
The growth of professional sports over the past few decades has also meant that athlete salaries have grown as well. The issue? Professional athletes fresh out of high school and college (most under the age of 22) are become overnight millionaires, and most lack the financial literacy to handle that adjustment. Surprising to most, a large percentage of professional athletes declare bankruptcy within a few years because of their inability to manage their finances. Nearly 16% of NFL players file for bankruptcy within 12 years of retirement and ESPN’s Broke looked at the prevalence of financial stress for professional athletes.
Henry Gribbohm lost a few hundred dollars trying to play a carnival game to win an Xbox, but then went home to get his life savings, $2,600, which he then proceeded to spend at the carnival game. Gribbohm claims the game is rigged, but he did walk away with a giant banana with dreadlocks. While humorous at first, it does paint a picture of financial literacy should be an important component of secondary education.
Thanks to Tammy Batson for the suggestion!
Athletes are notoriously bad at saving money and making smart financial decisions after coming into their fortunes. Carl Nassib, a defensive lineman with the Cleveland Browns, discusses the power of compound interest with other rookies. His goal is to convince his teammates not to go out and spend $10,000 on a needless purchase because that means they are giving up a lot more money later in life. While 10% may be an unlikely interest rate, the power of compounding interest is one of the key principles in financial literacy programs.