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How and Why Athletes Go Broke (2009) (si.com)
158 points by gwern on Feb 9, 2018 | hide | past | web | favorite | 262 comments

The stereotype is that many of these athletes go broke because they are foolhardy with money. I appreciate that this article highlighted that a lot of these guys go broke because of scamming financial advisors.

The athlete attempts to do the responsible thing and hires someone they are led to trust with managing their assets only to be ripped off. I'm not sure how financial literacy prevents this from happening when you literally may be lied to about where your money is.

Agreed, look at it from their perspective. They haven't been around a lot of money before, they don't have a lot of friends who have been around a lot of money either, so they don't really know even what questions to ask to understand the people who are arguing to be their financial advisors.

Perhaps major league sports would do well to help train their athletes in the basics of financial management in order to help avoid this situation.

Like any employer, it isn't actually in leagues' interests for their employees to have financial acumen. Your boss loves to see your new $50k vehicle in the parking lot.

You're right, them having debt like that means they're more likely to stick around (because they can't afford to quit). But it also means they could be more mercenary (seeking out the jobs that get them out of the debt, or let them keep spending themselves into debt).

Debt also puts people into compromised positions. Having worked around defense stuffs, that's an exploitable position. And people will exploit it. It's not just for government secrets either. Working on a corporate X project to make the latest and greatest self driving car? Have 6- or 7-figure debt? Someone may slide up to you in a bar and buddy up, take advantage of the desperation and get you to compromise your employer's secrets. For athletes, this means getting asked to throw games and underperform.

For six figure debt? I was under the impression that six figure mortgages were pretty common...

The picture he has in mind here is probably more like six-figure credit card debt.

That’s what I had in mind. Or maybe being underwater on a mortgage or a second mortgage. But generally I meant high interest, high principle debt.

The best thing a person can do in such a situation is to put the money in a savings account, and then set about learning what to do.

Nobody is going to have their best interests at heart but themselves. If you want to have money, you have to learn to manage it yourself. There's not really a choice about it.

Also, hire a properly licensed CPA. Make sure to listen to his advice on taxes. Don't give him a financial incentive to benefit if you follow his advice.

If you put that kind of money in a savings account, the bank will call you twice a day until they have made you move the money into something more profitable (for them.)

I would be surprised if the bank complained. They are only on the hook for $250K per the FDIC and could cover it with a low interest interbank loan from the FED. Since their mandatory reserve is only a fraction of the cash on deposit they will happily leverage it for greater returns paying you your paltry .7% while collecting much more than that.

This highlights the problem-- the most "conservative" approach, a savings account, is actually TERRIBLE financial advice. First the money won't keep pace with inflation and second a bank failure will wipe out the fortune. That happened to savers in 2008, most notably the failure of IndyMac.

So- Your money not keeping pace with inflation is better than anyone profiled in the article managed. Worst case scenario, bank failure, they might still be better off.

People fall into two broad traps. Either they are loosing money for no good reason (a consumption culture with ever escalating healthcare/edu/housing prices makes this simple), or they are accumulating money for no good reason, thanks to some class they took that says beating inflation is the point of their story. Once your housing/family healthcare/edu expenses are taken care off kiddos, there is no good reason to be beating inflation. Unless you are trying to build the Taj Mahal or something.

Actually there are some very straight forward wealth management schemes that may not get you the most return on your money but are better in nearly every metric than putting your cash in a bank savings account. The canonical example is a treasury ladder.

Of course. But you have to park the money somewhere while you learn about where to invest it.

If you've got more than $250K, I'd split it up into multiple accounts at different banks.

I suspect this is per depositor not per account... but I'm not sure.

FDIC covers $250,000 for all of a persons accounts in one bank. So you just need to have accounts in separate banks to 'increase' your coverage.


It's per account and can be doubled with a "payable on death" designee.

> It's per account

I think you're mistaken about the first part of your statement:

The FDIC says, "All single accounts owned by the same person at the same bank are added together and insured up to $250,000." (see https://www.fdic.gov/deposit/covered/categories.html )

But you are correct that it can be doubled, tripled, quadrupled, or even greater by opening different account types such as a Retirement Account, a Joint Account, a Revocable Trust Account, etc., at the same bank since each account type seems to get separate treatment (according to the same FDIC link).

A savings account without a fixed term requires that the bank balances that with reasonably short instruments. If it's a huge sum they will get nervous since they need a certain amount of liquidity as reserves and that's expensive. Keeping liquidity over the night gives very little interest, or even negative interest in some countries.

The bank wouldn't complain but if your account is significantly above the FDIC's $250k limit, it's usually worth it for them to invest a few days or weeks of a salesperson's time to get you to convert to a more profitable investment account. That kind of human attention is just not profitable with an account that only has 10s or 100s of thousands of dollars.

Your bank will stop calling you if you threaten to move your account.

BTW, any sane business would put their best salesmen on dealing with their wealthier clients, and those salesmen will know that haranguing customers on the phone is hardly the best way to sell them.

Actually, you might be surprised at how often a soft no means yes, in business. Of course, in one's personal life, people try not to be rude, so a soft no is often really a hard no. An athlete or doctor or lawyer who is too busy to give the salesman the time of day might be really interested but simply too busy to make time for the call. A good salesman won't give up after the first soft no. It is often the case in these situations that persistence is polite.

Savings accounts don't do great over the long term. The safest thing is usually just to buy real estate as long as the prices aren't stupid.

This article is from 2009, which, if you'll recall, was not a banner year for demonstrating the stability of real estate investments. Also, as detailed in the article, a big problem with real estate investments is knowing whether an investment is really worth what you are paying.

You start with “the safest thing is..” then suggest property, only if they have knowledge of what prices are reasonable.

Doesn’t sound safe. Index fund would probably be safer. Or savings account.

Do you know many people impoverished in their old age because they bought a couple of houses (assuming no mortgages)? Bank savings inflate away, stocks crash, houses are typically as safe as houses.

Houses cost property taxes, insurance, and maintenance. Those have been known to force seniors out of their homes.

The canonical problem isn’t “a couple of houses as part of a diversified portfolio”. It’s “entire net worth is effectively tied up in one house”. We saw what happened with this 10 years ago. Houses are only reasonable stores of value if there is some scarcity attached to the particular house.

property markets still collapse. Towns turn into ghost towns, it’s not bulletproof. The absolute safest thing is cash in a bank. It’s an absolutely terrible investment, and you’d be an idiot to do it, but it’s safe.

This is generalizing people of different backgrounds' knowledge of securities. There are plenty of middle/upper class people who buy into idiotic mutual funds with a 3% front load fee. Wtf? Heck, many employers still offer absolute garbage funds in their 401k.

I wholeheartedly agree that major league sports should provide financial management skills, however the same should also be provided at large corporations.

I think there is a difference between buying into a 3% front loaded mutual fund and investing in a restaurant in downtown Miami. The first is suboptimal and almost certainly won't beat the market, the other is likely to lose 100% of principal invested within a few years. I guess the equivalent for a non-wealthy person would be to invest all their money into lottery tickets.

Suboptimal to say the least. https://investor.vanguard.com/mutual-funds/low-cost

With Vanguard/Fidelity/Schuab you can make only 45k/yr over your whole career, put the $5500 into an IRA in VFIAX/VOO starting at age 22, and have an retirement income of $58k/yr (not including social security) when you retire. This approximately 1.1-1.5 million in retirement is enough savings IMO, and allows you to pursue whatever career you want, e.g. nonprofit/teaching/part-time with much less anxiety than a traditional pension or more active investment like a restaurant.

Maxing out an IRA is only a 12.2% pre-tax savings rate for someone with a $45k/yr income. This is not difficult at all, however it is important that it starts in the early 20s.

It is sobering math to figure out that a million dollars is only about $25k a year for the rest of your life.

A million bucks will make the rest of your life easier as long as you don't 1) spend it all and 2) don't make yourself unemployable (injury, bad PR, etc)

How are you computing that?

Perhaps you are forgetting that an investment still grows while you are withdrawing from it?

Here is a calculator that helps you compute how much you can actually pull from it: https://www.money-zine.com/calculators/retirement-calculator...

If you set the initial variables to:

- Retirement age 40 - Life expectancy 83 - Annual Return 7% (typical of stocks) - zero out everything else (no pension, no social security)

You get about ~$74K a year.

Even if you started retiring at age 25, you'd still be pulling ~$71K a year.

That was clearly off the cuff. But we're here in the context of people with new money blowing it all, so let's stay there instead of imagining we're talking about something else.

First, start with the 25 number. We're talking about athletes here, they aren't losing their income potential at 40, they're losing it a lot earlier than that. There are 40 year old athletes, but we talk about them all the time because they're unusual, not because they're the norm.

Next, cut the rate of return. Like by half. Nobody with new money is that successful with their finances. That's why we're discussing this.

Now, I wasn't thinking about this too hard when I did the math in my head, but I do tend to round down pretty heavily when doing math for myself for a very particular reason: adjust down for inflation. Way, way down. The biggest fuckup people make when rationalizing their rate of savings or how great an investment their house is: by the time you get to use this money thirty years from now it won't be worth half of what it's worth right now. Present day you thinks 25k a year will pay your rent. 70 year old you will have to move to the middle of nowhere to say that. You won't want to do that. So double your withdrawal rate by 60 and almost again by the time you die.

This is not a good way to calculate it because it ignores volatility of the investment. There are decades of publications in the topic of sequence of returns and the impact on retirement.

$25,000 is likely a little too low but $70,000 is way, way too high.

Most people who've done research agree that something like $25,000 to $35,000 a year from $1,000,000 is reasonable for someone retiring extremely young.

Which corresponds to 2.5 - 3.5%. Back in the 90's when I was doing my research 4.2% was the "magic" number. Of course your life expectancy has to factor in to, so if you boost your withdrawal rate as you get older you can try to hit $0 right when you die. (like timing the market, not recommended)

As people point out the thing to remember is that your costs change too, your health care costs go up but if your family moves out and you pay off your house your outlays go down. "Downsizing" or reducing the owning of expensive things (especially ones that require maintenance) can really help your burn rate.

May I suggest taking a look at https://earlyretirementnow.com/2016/12/07/the-ultimate-guide... - it's the best guide I've ever found on optimal safe withdrawal rates.

Your number was almost certainly based on a 30 year retirement timespan.

An athlete might be 30 years old at retirement and needs to think about a 65-year retirement timespan.

Yeah, that was my thought too - don't all these sports have players' associations / unions? What in the world are they doing, if not helping with this problem?

It's not their responsibility though. The player could take a course on their own initiative.

Its true they could. I think of it like auto repair shops. Here is something really valuable to your daily life, and you want it taken care of properly, but how do you verify that the person you are talking to is honest and trustworthy? You could buy the factory service manual for your car and read it cover to cover, with digressions into the parts which are assumed to be known by anyone servicing a vehicle, and then you could evaluate an auto mechanic's answers based on a ground truth of the service manual, but how many people actually do that? 1% ? 10% ?

In my experience in the Bay area with people who suddenly have more wealth than their friends and family ever did, there are two ways that people seem to split. Either they start splendiforus spending because they are "rich" or the start calculating what sort of 'burn rate' they can support drawing down at a rate of anywhere between 2% and 10% of their net worth. Using the 4% number (which used to be the standard before the great recession knocked it back to 2% for more conservative savers).

One of the things that people usually don't think about deeply is that money in the bank pays you, things that you own cost you. A car needs gas, a jet needs maintenance, a home needs gardening. And when you scale up the 'thing' you scale up the cost. As a result if you live what you perceive to be a 'rich' life you may find its sucking your wealth away. There are lots of studies on lottery winners which show this effect.

> In my experience in the Bay area with people who suddenly have more wealth than their friends and family ever did, there are two ways that people seem to split. Either they start splendiforus spending because they are "rich" or the start calculating what sort of 'burn rate' they can support drawing down at a rate of anywhere between 2% and 10% of their net worth.

Wow that's depressing as hell. I've seen the spending side of things, but for a long time out of college I was making more money than anyone I knew and also spending towards the bottom of the distribution. I think I was 25 when my average return started covering my cost of living.

My family didn't have much money growing up (due to medical reasons) and my parents don't really know much about managing money, probably because they both come from upper-class backgrounds where family money just seemed "taken care of". So I have to confess I'm not really sure where the financial irresponsibility of the sorts discussed in this post comes from. I'm tempted to say that it's a simply matter of high time preference, but that's a really self-serving explanation, so I'm not quite satisfied.

I feel the same. I have been in the top 2 to 3% income-wise but I spend money like I am on food stamps.

> In my experience in the Bay area with people who suddenly have more wealth than their friends and family ever did, there are two ways that people seem to split. Either they start splendiforus spending because they are "rich" or the start calculating what sort of 'burn rate' they can support drawing down at a rate of anywhere between 2% and 10% of their net worth.

Nobody tries to keep their costs below their income? If I was suddenly wealthy, I'd try hard to make sure lifestyle spending was covered by growth in my wealth, not by drawing it down.

It doesn't need to be their responsibility, it is something they could do and wouldn't cost them much.

If anything it could help with their recruiting efforts: Show a list of athletes that got screwed by shady advisors; show how they'll connect you with real advisors (at established and more trusted institutions) and education to discern what options are good and what aren't.

Won't make a difference when tyring to get that top QB, but it may for all those guys who're only making $150k-300k.

Which courses do you recommend?

I'd start with a course on basic accounting, which you can get at your local community college. It's critical to be able to read and understand a financial statement, and it's not that hard, either.

I'm not convinced it's as black and white as that. Look at the example given (Rocket Ismail). Not to pick on an individual, but he doesn't seem to be taking responsibility for any of his losses, even with the supposed "hindsight" he now enjoys:

-"One of his advisers pitched the idea as"fail-proof, with no downsides," Ismail recalls. He never recouped his money and has no idea what became of the restaurant."

-(COZ Records) "The guy was a real good talker," says Rocket

-(Cosmetics) "We were not prepared for the sharks in the beauty industry"

-(Retail stores) "The main store opened up in New Orleans, but doggone Hurricane Katrina came two months later". The shops no longer exist.

What strikes me about these examples is they're all supposedly somebody else's fault.

To my mind, what isn't being taught (both to young athletes, and to the population in general) isn't so much personal finance, but personal responsibility.

I think the issue is, we're all thinking they're stupid for not realizing the risk of their investments, but maybe they do! Or maybe they recognize half or a quarter of the risk. But they don't understand the alternatives. Nobody is on the "other" side saying "invest in mutual funds!"

They probably get "exciting business opportunities" and "help your friends and family" and "spend it all on hookers and blow!" and the "exciting business opportunity" might sound like the best way to keep their fortune going compared to the other options.

I suspect that you're right and possibly because of the following reason: they've had a lifetime of outsize results. They were always the fastest, strongest, got the girl. Now comes along either a normal ETF with average returns, or the promise of outsized ones sold as insider tips between experts. It'd be tempting and in-character to swing for the fences.

These examples mostly sound like they're about financial literacy, or at least the first thing you learn: if it sounds too good to be true, it probably is.


Nothing is fail-proof.

People will say anything to get your money.

Business is cutthroat.

And shit happens.

I wonder how much shady side-betting these financial advisors do. It's easy to make a few hundred thousand, if you get to decide where your client invests a few million.

Reminds me of the good old Goldman Sachs, who made a killing betting _against_ their clients. https://www.theguardian.com/world/2010/apr/25/goldman-sachs-...

I've never understood this perspective.

If I buy something from Goldman then they think the price is too high and I think the price is too low. If I sell something to Goldman then they think the price is too low and I think it's too high.

If they're not willing to bet against me then they'll say something like "sorry trader was off the desk". Or if they're just less willing to bet against me then they'll say "sorry mate wide atm due to volatility".

I don’t think your perspective is very useful, because you seem to be assuming that all commercial transactions are zero-sum, since you describe both parties believing they are the only ones benefitting from the transaction.

If I buy a $5 sandwich at a deli, it’s not the case that I think they’re suckers for valuing $5 more than the sandwich, and I doubt they think I’m a sucker for the inverse. Clearly, what’s really going on is that I am hungry and cannot eat a five dollar bill, whereas the deli has way more sandwich ingredients than they need to eat themselves, and they need money for other expenses. We both benefit.

I'm more relying on my experience in trading with Goldman and other banks than I am assuming anything. I also don't see where I said anything about zero sum games.

FWIW, I read your comment the same zero-sum way. Perhaps it was because you used the term "the price" as if there's one price and any deviation from that value represents error.

If I have three shoes, I might correctly place little value on the extra, while a person with only one shoe might correctly place a lot of value on it. My selling the shoe for anything more than $0 is rational, and the other person's buying the shoe for anything less than the price of a full pair of shoes is also rational.

The shoe analogy is great.

It isn't perfect because in finance everyone's goal is to make money so it's a little more complicated, but there are similarities.

You might have a situation where ex-ante both parties are making the right decision, but one party would have rather not traded ex-post.

I might have some oil exposure so I want to sell oil futures. Maybe you think oil is going up because it's above some moving average so you show me a better market than the exchange for my size. We trade. If a minute later oil is higher than I will have wish that I waited a minute to sell and you'll be glad that you bought.

I'm not saying it's zero sum because we both willingly went into the trade and it's even possible that you'll make money on a 1 minute time frame and I'll make money on a 1 year time frame or I'll receive some other benefit.

This would happen all the time in a product that I used to trade at a non-bank financial firm. I had one way of valuing it and the banks had another way. We'd trade when we disagreed.

Except in this case it was Honest Goldman's Sound Financial Advice Inc advising you to buy, and Goldman's Shady Shell Fund Ltd selling. I don't think most clients of financial advisors check who's the counterparty in their trades.

Legally, there's very little preventing your advisor from telling you to perform trades that make you poor and the advisor's buddies rich. A lot of the aftermath of the 2008 crisis boiled down to "It might not have been moral, but it sure as heck wasn't illegal".

> Legally, there's very little preventing your advisor from telling you to perform trades that make you poor and the advisor's buddies rich.

Well, other than the new Fiduciary Rule, though the Trump Administration handling of the implementation of that rule seems to have everything up in the air, from the coverage I've seen.

I don't really see the issue unless there were incentives set up to encourage this and it wasn't properly disclosed.

Usually when you trade with a bank desk you know that they're betting against you because they're the ones on the other side. If they weren't doing that then you'd always have to wait for a customer to take the opposite bet, but the market might move by the time such a customer appears.

Generally you don't want people in Honest Goldman's Sound Financial Advice Inc to know what people in Goldman's Shady Shell Fund Ltd are doing and vice-versa.

As the article tells us, a lot of athletes walk into meetings with their advisers and just get snowed by a bunch of jargon they don't really understand. They're not necessarily sophisticated investors who even know to ask these questions

I agree that there are issues with unethical financial advisors and retail customers. OP linked to an article about the wholesale "professional" market where the same rules don't and shouldn't apply. I'm saying that as someone who's been both on the bank side and the customer side.

Never set up a discretionary account with a broker. The discretion thing means they can make decisions on what to buy and what to sell. In return, you pay commissions on the trades, plus a percent of the value of your portfolio.

Their incentive is to trade as much as possible. This is awfully tempting, even for the most ethical broker.

This is a total bummer because really, these guys would have been much better served just investing in an index fund with the schlubs than with these guys trying to sell them fancy instruments and investments in dubious businesses. Yeah, the potential return is smaller, but probably plenty.

At the end of the day, it's the same reason most people go broke: they know nothing about money. Unfortunately, Money is the most important thing in the world because you can't get anything without it. And yet, it's not even a primary subject taught in k-12. Where are people supposed to go for a decent financial education? Instead k-12 teaches kids about useless butterflies and countless other things that are of lesser importance. You would think, they'd at least teach it in college. But, I know MBA graduates with 3.8 GPA who don't even know what a tax deduction is!

I recommend basic financial classes for everyone k-12, everyone should have the right to basic understanding of personal finances and basic economics.

I have a very vivid recollection of 8th Grade Civics units on personal finance, budgeting, and tax management. In this unit we were awarded a salary through a lottery system and had to learn to live within the means of our salary. Students would pair up and find homes to live in by reviewing ads in the newspaper. We would have to learn to set aside money for savings, groceries, and for fun. We also learned how to invest in the stock market and also filled out the paperwork to file 1040EZ tax returns.

This was all in 8th grade public school in Virginia around 2001. I thought this was normal, and it saddens me to realize the inequality in education across the nation.

I'm pretty sure your experience is pretty normal for the US. Lots of people forget that they had several classes that taught basics of personal finance, few people actually didn't have those classes.

I believe you are completely incorrect, but fortunately the tide is turning. This article points out that 17 states now require personal finance education in high school, but 20 years ago only one state did (Illinois). http://www.businessinsider.com/high-schools-teaching-persona...

I certainly did not have it myself, and my K-12 years were from 1985-1998 in Indiana (public school). We had an accounting class. We had a government class that taught how a bill becomes a law and all that. We even had a home economics class where we learned how to make pillows and pigs-in-blankets. But no personal finance whatsoever, and certainly no economics until college.

I distinctly remember approximately 15 minutes of relevant personal finance education in all my primary school years, when one math teacher went off-curriculum at the end of a class to show us the magic of compound interest. (It blew my mind)

Everything else, from balancing a checkbook (no that wasn't taught in accounting) to filling out tax forms to how credit cards work was either taught by my parents or self-learned through social context.

You do realize how many poor college students have been taken in by credit card offers that used to be right on campus to sign up gullible freshmen, don't you? Fortunately I think that has fallen out of practice (it got enough publicity that colleges now realize it makes them look bad, I think). But for how many years have millions of 18-year-olds fallen into this kind of trap?

You think any of those people had personal finance classes? I seriously, seriously doubt that. I think the vast majority of Americans (until recently) did not have any such formal education on how to navigate money in the real world.

I don't have any idea the prevalence of this kind of education in other countries, though.

Just because it's not required doesn't mean it didn't happen.

> You think any of those people had personal finance classes?

Yes, I'm almost certain some of them did. All the education in the world won't make good decisions for you when you once you set out in your own. We've been teaching kids sex ed for decades but we still have STDs and unwanted pregnancies.

You really never had any other math teachers assign problems related to compound interest, investments, credit cards, savings accounts? I was in school just 2 years later and these problems were very common in the math books we had.

The math books teaching the formulas for calculating interest is not the same as personal finance education. As a geek of course I knew all the formulas, I couldn't even take a math class my senior year because I took Calculus as a junior and they ran out of possible math classes for me to take. But although I knew all the formulas, nope, I can't recall any math problems, or any explanations/descriptions, relating to: how credit cards work, minimum payments, grace periods before interest starts, the fact that after paying interest you have to pay it off and wait a full period before the grace period resumes, how balance transfers work... and that's just credit cards, and just the basics, not the more advanced topics like travel points/cashback, signup bonuses, churning, etc which you probably shouldn't be teaching kids anyway.

Nor was I ever taught anything about savings accounts, tax-deferred retirement accounts, stock investing, etc. Although I hear stock investing in particular does come up in a lot of schools because it's "fun". But I never had any teachers let us play the stock market for fun, I totally would have been into that. I was never even shown a tax form in school, let alone had it explained.

I was able to do my own taxes because my dad showed me how. My mom showed me how to balance a checkbook, although that rapidly became useless knowledge when I could start monitoring my account online on a daily basis :) The rest I just kinda figured out, or didn't. My dad told me credit cards were bad but never explained them, ended up getting in debt, have been out of debt for a few years and now use credit cards responsibly -- "pay off in full to get the cashback, never pay interest". Nope nobody ever told me that either.

I see what you're saying, and I didn't learn a lot of those specifics in school either (or actually I'm pretty sure I leaned some of them but have forgotten and had to learn again, which is basically my larger point). I'm not sure that I agree that we should be dedicating time in school to things as specific as what you listed (but maybe I could be convinced!). It seems to me that the few kids that would actually pay enough attention to a class like that to remember anything 3-5 years later when they have to start using it would find that much of it had become obselete (like your balancing check book example.) Almost everything you listed about credit cards is written in the forms you have to sign to get one anyway, if people aren't reading that I doubt a class from years earlier will help.

I do remember the first time I considered buying stocks that I literally had no idea how to do it. Like - who do I give my money to in exchange for a piece of a company? Absolutely no idea. I feel like the Internet has pretty much solved that problem though.

We should absolutely be dedicating time to personal finance while kids are in school. I especially think a personal finance class would be much more useful as a junior or senior math requirement than stats, trig, or calc in under-served communities where financial skills would be most valuable. Yes, maybe it doesn't make sense to be begin committing serious time to any topics more complicated than saving and spending management until kids are old enough to get jobs. But to argue the topic is too boring for kids to pay attention is pretty lame considering many of my peers in highschool were pretty disinterested in the whole thing to begin with. At the very least, a reintroduction of the topics every year or so would provide kids with some recognition of the topics and a more structured curriculum requiring students to track (preferably) real expenses and create budgets would probably go a long way.

My experience mostly overlapping in time in Colorado where I went to 2 high schools. The one was the bad one with fights in the halls and mostly poor kids that did not offer any accounting/finance/home economics. The good school with wealthier families had an optional accounting course which I took and it covered checkbooks and interest and we even had to read credit card fine print in one class. (The teacher looked out for her students even helped get me a job working for a CPA part time).

Kinda sad how it works out that the ones that needed it more didn't have access. A little microcosm of America I guess.

I don't know about that. In my school district, there was a 5th grade field trip where we had "jobs" that paid "money" we could use to buy trinkets at the other shops the other kids worked at. That was the limit of my school teaching financial literacy. We never learned how to file taxes, how to invest or what good investments were.

There was a high school elective course about personal finances, but because it was an elective and sounded boring, none of my friends took it.

I don't think it is especially hard to learn how to invest, but I suppose getting to the point where you know the right questions to ask might be hard without knowing people who know the basics.

I went to private schools in CA and never had classes like these either.

I didnt


Nope. Graduated HS in '99, not a word about personal finance. Yes, time value of money calculations in some math classes, but nothing about actual personal finance. No civics, no home ec. Just math, science, humanities, etc. Granted, I went to a very tiny public school... but still.

IMO the financial industry tries to make it seem so much more technical and complex than it is. Even for how an average person can invest money. A lot of people are perceiving it as such.

Well you're not going to be inclined to pay them for something simple.

> they know nothing about money.

Oh, I think they probably know the basics.

They know how percentages work well enough to know that they could take all that money and put it strictly into safe investments, and get a considerable, steady cash flow from that, on which a more than comfortable life is possible.

Any rank and file financial advisor at a local bank branch could set them straight on the basics, if they want.

Come on, just half a percent earned on $100M is $500,000; total no-brainer.

That's boring though; they want to substantially multiply their wealth. They want to take their dough and blow it sky high. E.g. guy who has a $100M million put away thinks he can turn it into a $1B empire.

It's like another sport; scoring another goal.

In some ways, taking the risk makes sense (just not to the point that you go broke). Say you have that example $100M, and you could earn 0.5% on it for the rest of your life. Well, whoopee; why would you? You could simply draw 500,000 a year from that for 200 years, even if it earns nothing. (Let's ignore inflation and all that for simplicity.)

So you can see why the lower-yield safe things are not attractive if you have a lot of money.

I think these guys just fall victim to a "go big or go home" thinking. Plus they probably think that they have so much money, they don't have to keep tabs on exactly how much.

Also, while they have those high paying contracts, they think that their income can always save them.

They need more financial games. I remember playing Railroad Tycoon as a kid and realizing I could run a pump and dump scheme against the AI. At the time of course I didn't know there was a phrase for pump and dump, or that it was a well known financial play, but that game put me on good footing to both get a very rough understanding of the stock and debt markets. My own nefarious behavior probably also gave me a more cynical outlook on financial transactions.

MBA who doesn’t know what a tax deduction is? I call bullshit. I did a business minor and took finance, any business student would fake finance.

>everyone should have the right to basic understanding of personal finances and basic economics.

This is silly. Living within your means is like doing the dishes or the laundry. When someone "doesn't know how" or "needs to learn how" it's not that they're missing or failing to comprehend information. Even if they lack it, it's trivial to acquire. The relevant entities are discipline, habit, and values. This is not something you can learn in a lecture, only by doing.

If you're just clueless about personal finance, the worst thing that happens is you pay for tax prep services (something many of us do anyway to save time).

Going broke or getting up to your eyeballs in debt is either an arithmetic error (don't try and tell me schools don't teach subtraction), a failure of self-control (if your income should be enough for you situation), or a symptom of insufficient income for your situation. I'll venture a guess that most of the time, it's the latter.

Everyone below a certain income starts with insufficient income to go to college, buy a car, go to the dentist, and many other things.

Living paycheck to paycheck is a very real thing, and it only takes a minor circumstance to cause massive debt. You don't even need a credit card to find yourself up to your eyeballs in debt.

Yes, and financial literacy isn’t going to help.

Easy access to credit and sudden unfortunate circumstances bite people more often than you might think. You have it under control, until you don't.

Exactly. Debt is typically caused by having less income than your situation demands (illness, parenthood, college without parental support, etc) and should be viewed as a symptom, not a cause.

Making a bunch of investments you don't understand well and losing your money I think is more a matter of education than "discipline."

I'm a senior in college and needed 3 more credits to fulfill my credit hours for graduation. I saw that we had a personal finance class open to any major. I find it ironic I've been waiting for this curriculum my whole life, and yet here I am able to take it during my last go-round as a student.

Yes, my thought too. I want to learn about managing money properly. Do you know any good book which is friendly to lay persons like me. I don't want the book to be too dry but also don't want a book like the idiot guide which tries very hard to be funny.

I recommend the books by Dave Ramsey. Here's got everything from personal finance to wealth management.

Do you have any book recommendations? I have some younger relatives graduating from college soon, and although they are bright, I worry about their financial sense. I talk to them regularly, but something more concrete would likely also help.

"If You Can" by William J Bernstein.

It gives a simple conservative investing strategy, and refers to other great books for the details.

Available here: https://www.etf.com/docs/IfYouCan.pdf

"Fail Safe Investing: Lifelong Financial Security in 30 Minutes" by Harry Browne

"The richest man in Babylon" was also a good read for me early on. It's told in a story format.

"Your money or your life" is also good for the principles although it's a little outdated.

Rich Dad, Poor Dad is lifechanging for a lot of people. Note that it focuses on real estate, but the lessons are spot on.

A Random Walk Down Wall Street

Dave Ramsey videos on YouTube.

Wealth is what you have left when someone takes all your money away.

you just explained that the most important thing is knowledge not money

No... Knowledge of money

TLDR; 60-70% of players go bankrupt or are under financial stress after they retire. Reasons are (1) they don't follow balanced mix of investments and squander money in opportunities presented by smooth talkers (2) they end up hiring people who are friends of other players as opposed to actual professionals to manage their assets (3) divorce.

The recommended mix of investments for 20+ million assets is apparently "5%to private equity, 7%-12% to real estate, 50%-65% to a mix of public securities(stocks, mutual funds and the like) and the rest to alternatives such as gold and hedge funds.".

Thank you. That article was insanely long winded.

Let us not forget that even in 2018, your Financial Advisor (loosely defined) may not be obligated to act in your best interest [0]. The Financial Services industry has been fighting hard for the gravy train to continue unabated for years. Fortunately for them, Trump has been very receptive to their plight and doesn't want the party to end just yet.[1]



Reminds me of this John Oliver segment:


In many situations, people who are identified as being at risk have somebody else placed in control of the finance, by court action. Brain injury patients for instance. Hmmm.. hang on.. whats the major risk factor in the football circuit again?

Seriously: the recruitment of minors for major league with giant cash benefits should require them to sign a consent form for arms-length management of their capital for some time period, and give them the income stream not the capital.

after all, its often how the money is being controlled that wound up being their notional capital in the first place

Really, taking their adult autonomy away is the first step? How about education?

This might be anecdotal, but I feel like we don't hear these athlete bankruptcy stories as often about hockey players. Why? Because they're all white, not black. Putting a kid through junior hockey is expensive and hockey players tend to come from privileged homes with much better financial education than young black football players. They get just as many knocks on the head, but they get better advice from their father's accountant, and they make it to retirement with some money left.

Making them sign away control of their money sounds like a new version of the old story of infantilizing black people by removing their adult rights, "for their own good".

Seems pretty anecdotal. Hockey tends to get less press in general than baseball, so I know of a lot more broke white baseball players than broke white hockey players. There's some broke white golfers out there too, that's another money-requiring sport.

Any broke Formula 1 race drivers or tennis players? That's where you'd really look for athletes coming from wealthy families, I think.

Anecdotally, I majored in economics at a large public school with a (at the time) national championship caliber hockey team. All of the players on that team that made it to the NHL attended the same classes I did. Most did come from privileged backgrounds but at least one grew up in the projects of Toronto. The coach strongly encouraged his players to take at least a few classes that would give them some financial grounding.

In Canada it's different - our sports press is all hockey, all the time. Granted I don't pay much attention to it, but if any sports news makes it to my news feed, it probably is going to be about atheletes going bankrupt.

Could be an exception to the rule, but the highest profile athlete bankruptcy recently is from a hockey player


That was a bit of a different story since his parents took out loans in his name.

To this Making them sign away control of their money sounds like a new version of the old story of infantilizing black people by removing their adult rights, "for their own good". Yes, that's certainly a dimension. And it works in Australia too, where aboriginal workers had their cash both sequestrated and then stolen.

In my defence, weak though it is, there was no moment I actually intended to refer to specifically black sportspeople. If more black people in sports in America are financially uneducated, the bias in outcome would be there. I am pretty sure immature spending behaviour is colourblind and in all seriousness I meant this across race and culture: I think huge cash incentives for young people should be constrained to last. I'm not a libertarian.

Really, taking their adult autonomy away is the first step? How about education?

When do you educate somebody about how to control millions of dollars of assets, in the moment of giving them autonomy over them? If you want to propose education, then its rational to propose the control over the money before and during education is there, no? or, do you propose letting them blow the million on drugs and sex, and then teach them how to sustainably hold onto it, when all they have is a debt hole?

That’s a unique spin. It’s not about infantilizing. Hockey players also make a lot less, with fewer big payouts and thus fewer big flameouts.

Personally, I think the unions should help guide these guys. New money leading to bankruptcy is a universal story, not unique to any race.

Athletes are particularly vulnerable to scammers, as they spend a lot of time isolated by coaches with a small group of people. Self dealing trusted advisors and that isolation makes them vulnerable.

Hockey players make more than football players.

And the average NHL career is only a few years like the NFL.

I would consider a much less drastic step.

Mandatory contribution of 10% of their income into an investment account and that has a maximum annual withdrawal of 1% until age 55.

If they otherwise destroy their finances, they'll at least be able to afford a place to live.

In Canada we have the CPP (Canada Pension Plan) which is almost literally this, except everyone pays into it.

In the US, we have Social Security and everyone pays into that but for the most part, you can't collect anything on the benefits until you reach retirement age or become permanently disabled.

Not a bad idea. Here in Australia we call that superannuation. 9% of salary is mandatory.

I'm curious as to how hockey is any more expensive than any other sport that has player equipment and a privileged background is more beneficial to making it to the professional level than any other sport.

Could it be that black kids as a group just isn't that interested in playing hockey?

In most of the US you can't even practice ice skating without paying money. Compare that to the number of basketball courts out there for pickup games, or fields where football could be played. It's not solely that the equipment costs more, it's that practice directly requires money, and practice time is the biggest overall driver of excellence. Professional race driving is another example of this. Tennis another notable one.

If you want a direct non-racial example of this: white hockey player origin distribution, Canadian and Scandinavian-born versus US-born. Guess where the ice is? :)

Baseball is another sport where black participation has declined in the US and the general assumption is that it's similarly because it's harder to find places to practice baseball in modern American cities (while still much more common in Latin America). Hence http://mlb.mlb.com/mlb/official_info/mlb_official_story_head...

So the problem is lack of ice and not directly related to economic status? If one goes far enough north, or south, where ice is easily found for practice then the costs decline? So it's more where people choose to live versus the cost of the sport as a whole?


Organized youth sports are expensive (in the US at least), and hockey more so than others. You need a lot of equipment which your kid will keep growing out of, and then costs for ice time. Ice time is likely less expensive in big hockey regions (I have no idea), but it's always a cost. A competitive youth league team isn't practicing on a frozen lake.

So, sticks and skates as more equipment than football.

Although, someone pointed out elsewhere that good skates can be expensive and requires maintenance. I didn't consider costs of keeping skates sharp. But I'm still curious as to why high-quality expensive equipment is required specifically for hockey when it seems to me that every other sport has a large number of kids with substandard equipment. Do hockey players not use hand-me-downs or used equipment?

> So the problem is lack of ice and not directly related to economic status? If one goes far enough north, or south, where ice is easily found for practice then the costs decline? So it's more where people choose to live versus the cost of the sport as a whole?

Minors don’t choose where their parents live. If you’re getting drafted at 19 yrs of age, you’ve probably been playing since you were a kid. If you don’t live in a region with abundant natural ice, it will cost you money to skate.

Frankly, your comments comes across as the same type of empty criticism as that which often comes up when people complain about government: “If it’s really so bad, why don’t you just move to another country?” Easier to blame someone for where they live than to consider the challenges of relocating. Both criticisms are deliberately dim.

No, I'm just asking questions trying to understand how it is that hockey is apparently the most expensive sport for kids and only the highly privileged kids get to play.

I don't understand all this negativity I'm getting by just asking questions. A person couldn't possibly propose a solution to a problem without asking questions first.

What?? What point are you even trying to make, now? "More black people would play hockey if more slaves had been imported to Canada and Scandinavia"? Sure, probably, but that's now a completely irrelevant hypothetical to the posed question of "is there a economic background connection to the likelihood of bankruptcy after exposure to extreme short-lived income streams?"

Um, I think I said nothing of the kind. I believe you need to reconsider how you approach different topics. People are free to move about these days you know.

Why in the world is someone downvoting me for asking questions?

Especially given that it's Black History month, it sounds like you might be interested in watching this movie:


And consider this criticism of the somewhat rosier picture portrayed in that film:


That criticism seems to conflate culture with skin. The NHL has a culture where bring the spotlight on individuals is frowned upon (For a long time having a high number on you sweater was considered showboaty). The article wants to call this "white culture" that is unwelcoming to people of colour. That seems wrong to me.

Skates are more expensive than cleats. Hockey sticks break or are grown out of, and decent ones are a few hundred bucks.

A quick look at Google shopping disagrees with shoes vs skates and hockey sticks. Although I'm not up to speed at what qualifies as a decent hockey stick and the required cost.

There are inexpensive youth and junior skates (<$100), but these are for younger kids. As soon as you are wearing adult sized skates (10-12yrs old), the price is many times that of cleats.


Ah, you provided examples unlike the other comment I responded to. Thank you for that.

But if priced low-to-high the senior skates on that site start at $64.99 and go up from there. Assuming that the lower cost skates are not worth it, you get what you pay for and all that, what's wrong with the middle tier skates that are in the $100-$200 range? How long do they last once a kid's foot doesn't outgrow it every 3-to-6 months?

A decent pair of hockey skates are $300+. You also have to take them in to get sharpened every week if you are that aggressive on them. This is $60/mth.

You also have to invest in padding, helmets, gloves, socks, and so on.

What defines a "decent pair" of skates and why do they cost $300? Wouldn't a nice pair off the shelf at less than $100 or around $50 suffice for a young kid just wanting to play hockey?

I didn't consider the maintenance aspect; the need for sharpening makes sense though.

Good skates can be baked and molded to their feet.

Cheap skates are like cheap running shoes. Yeah, they get the job done until the ill-fitted skates don't offer proper fit and support. Your kid is fine for a month, then they have welts from the cheap insoles and twisted ankles from no stability.

Just wanting to skate at the rink is one thing, practicing and chasing pucks on top of learning edge control demands proper equipment.

Just about every high school has a football team, equipment is often paid for via fundraisers/carwashes etc if it's not in the budget. Hockey is generally not a high school sport, young people have to pay to participate and do so completely on their own time outside of school.

So it's just as possible as football, but the locals decide to not offer hockey in the same way? What if predominately black high schools in large cities started demanding hockey teams?

Football can be played/practiced on any large grass field in any climate any time of the year. Hockey requires an indoor facility with expensive chilling and maintenance equipment if you want to play outside of a few northern cities for a few months out of the year. Inner city Houston kids will never have access to hockey facilities in any significant numbers.

Do inner city schools play basketball outside? Although, I can see maintaining a hockey rink has increased costs over a basketball court.

The expenses are high and the exceptional players start very young.

Ice is more expensive than fields, but there is probably a feedback loop as well.

> Seriously: the recruitment of minors for major league with giant cash benefits should require them to sign a consent form for arms-length management of their capital for some time period, and give them the income stream not the capital.

So this looks great at first right? It's like a lotto winner taking the lifetime payments instead of the lump sum. The problem is you can take loans against that money very easily, or you can sign the contract over to someone else very easily. Want to invest $300,000 in your friends restaurant because you think he's a great chef, just take a loan against 10 years worth of your guaranteed income stream.

Yes. I see now that "a fool and their money are easily parted" lives on. I don't know what to do about that.

Maybe a ten percent retain and the moral of the story is you are a former millionaire who now has a small stipend to remind you how stupid you are.

If someone is determined to screw themselves, it's impossible to stop them.

> Seriously: the recruitment of minors for major league with giant cash benefits should require them to sign a consent form for arms-length management of their capital for some time period, and give them the income stream not the capital.

No, thanks. It's their money, let them have it. If they want it to be invested on their behalf, that's fine. But it should be their choice.

How would you like it if your employer told you that instead of paying you your wages, he was instead going to contribute to an investment fund, and you'd receive the income from that fund rather than receiving the money directly?

That is quite literally how retirement works.

But paying into a pension is optional.

And to the extent that it's not (e.g. National Insurance): it should be.

It should be so we're down the Cato institute rabbit hole? Sure. You believe one thing and I believe another.

Replace your employer with government and its real life social security. In theory I support it... if it lasted till I retired.

Unfortunately, what Cato says is very worrying (1). Primarily, they highlight court cases in which Social Security is pulled away from people, and reaffirmed by SCOTUS. This is the troubling quote:

The Court’s decision was not surprising. In an earlier case, Helvering v. Davis (1937), the Court had ruled that Social Security was not a contributory insurance program, saying, “The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.”

We would likely have a national riot if Social Security was just yanked at once. But if my own life is any guess, the age to qualify for "benefits" keeps going higher and higher. It's theft by attrition, and backed as not theft by courts.

I do not agree with CATO's eventual policy of "privatization" at all. The other choice, which was not posited, was to earmark the funds, keep them segregated from the general fund. Then do the right thing and set Social Security as a guarantee at the same age for everyone. And, remove that cap.

(1) https://www.cato.org/publications/commentary/is-there-right-...

>Then do the right thing and set Social Security as a guarantee at the same age for everyone.

You have to take in consideration a few factors governing the original social security age limits. IE Life expectancy was significantly less. People live on average quite a bit longer now, addressing that reality isn't a bad idea.

The other thing to consider is the money we're paying in now isn't being saved for our benefit later. It's being used to pay the benefits of current retirees. Not to mention the money that current retirees paid into the system 20, 30, 40 years ago is a pittance to what they're drawing now.

I mean I like the idea of social security. A lot of people do, it's become ingrained in our national expectation. But in the same token, a lot of people don't have realistic thoughts about it. And we're going to need it to evolve with the realities of our culture. Longer lifespans, real cost of living, etc are all real issues that can't be ignored and expect Social Security to chug on perpetually.

Social Security is perfectly sustainable. The problem with is the demographic bump of the baby boom and use of it as a political football during the 60s and 70s when benefits were spun up, followed by the congress reducing funding by capping payments.

Payments have always been capped (maximum taxable earnings), your history is factually wrong. Congress spends the surplus but the only actions ever taken by Congress on the revenue side of Social Security have been to increase taxes paid into the system.

The cap didn’t increase with inflation, which impacted collections.

In effect the payroll tax was spun up in the 80s and used as government revenue via special bonds. But as the surplus as waned due to increased payments, the cap didn’t move and the government’s spending power to bridge the gap was reduced by our post-2001 perpetual war.

In my country, that's called superannuation.

You get some choice where its invested, but in short, you can't spend it on anything that benefits you materially here and now. 9.5% minimum is taken out of practically every non-casual working position.

In general, it's defined contribution, not defined payment (barring some of the older pension plans which are going to have some tough decisions ahead).

Flaws of the system aside, I'm generally in favor of the idea myself.

For 9% of my pay that's what happens. Australia has mandatory age savings. I have discretion over the investment fund. I don't get to spend the cash on hookers.

Choice is a hot button item. You value this specific choice above others. I value their long term welfare above choice in this matter.

That's what a pension plan is.

> Seriously: the recruitment of minors for major league with giant cash benefits should require them to sign a consent form for arms-length management of their capital for some time period, and give them the income stream not the capital.

First of all, these are not minors - they are over 18. Secondly who the heck are you to decide that you should be in charge of what they can and can't do with their money?

It's also very uncommon for NFL recruits to go straight from high school without passing through college. Which would put them at closer to 21 than 18.

NFL players are required to be at least three years out of high school.

Ah. I knew I hadn't heard of one recently, but did not know about this specific rule. Thanks for the info.

It's called personal responsibility. They're earning sums that many will never reach and it's on them to figure out what to do with it. Nobody is stopping them from asking for help and it's not like there aren't enough examples to learn from by now.

Someone who doesn't have responsibility can't be forced into it.

And the NFL tries to provide that help, by making rookies listen to lectures about managing their finances. But while you can make them listen to advice, you can't force them to follow it.

You can definitely raise children for more responsibility or away from it. If a lot of top sportmen can't manage finance, that would suggest that there is something about the system that raises them (they spend more time on sport then anything else) that is that way.

Which would suggest that responsible parent won't put children into such system.

So now naivety (ignorance) is a moral failing?

No, who said anything about right or wrong here? What I said is responsibility. If you're naive/ignorant/otherwise unprepared then the answer is to ask for help and learn so you can be better prepared. That would be best for your future but it's ultimately up to you and nobody else really cares what you do.

You didn't say "responsibility", you said "personal responsibility". "Personal" implies that they should take sole responsibility for their circumstances, ignoring any other agents involved.

So, yes, it does appear you're talking about right and wrong.

What a strange interpretation. Did you read the entire thread?

The comment I was originally responding to said teams "should require [athletes] to sign a consent form for arms-length management of their capital" which I absolutely don't agree with because they are adults who can choose for themselves. And yes, it's personal because it's their money and their choice to either spend it or do something else.

I don't care what or how they do it, and there's no inherent wrong or right involved. It's their paycheck and they can do whatever they want with it... but taking away their agency in the first place doesn't solve anything and certainly doesn't magically teach better decision making in the future.

The phrase "personal responsibility" has decades of rhetorical baggage, from long use as a dog whistle by the USA's political right.

Going with the principle of charity: I apologize for assuming you were using "personal responsibility" as a bludgeon.

> require them to sign a consent form for arms-length management of their capital for some time period

All 4 big professional leagues in the US have pension plans [0] that, while not making them rich, will at least provide enough money to survive in the event they blow all their earnings. It's not quite as extreme as what you propose, but there's definitely some deferred income.

[0] http://www.businessinsider.com/nfl-nhl-nba-mlb-retirement-pe...

There was actually a sports agency run by an accounting firm that did something close to this. They basically said, “We will make sure you and your family are taken care of for the rest of your life but it means there are certain things you have to let us handle with your finances so that we can say ‘no’ to people for you.”

They also had to agree not to spend on drugs, strippers, excessive houses, etc.

It seems that we, the people that read about athletes and celebrities losing their money while we commute to work feel the best course of action is less control. Arguably similar, people in technology who hunt equity at the expense of future financial stability. We consider their competence at managing money in the but not the latter.

Actually we do. Lots of online resources council new ict startup entrants not to be seduced by vesting, try to point out the huge downside potential risks. The small group of people who do hunt it, are quite distinct from the people who enter sport for huge short term up front money with inadequate skills to manage it. YC isn't combing high school and college touring cash now for brilliant ideas.

ESPN's "30 on 30" sports docs looked into this matter and did a really goof job and worth watching. The episode is called "2 Broke". https://www.youtube.com/watch?v=Elfw0ESih-A

What a bunch of goofs.

Edit: downvotes, really folks? You don't see the parent's typo?

I think most downvoters get the joke! It’s just that your comment seems a bit snarky to the op and doesn’t contribute much to the discussion. The HN community puts value on civil and substantial comments. (most of the time...)


You would be upvoted on Reddit. Not here.

Pretty much the plot of the HBO series "Ballers". It's not the most intellectual show, but it does tie together the fallacy of "Balling", essentially how trying to maintain an outward perspective of wealth and excess usually leads to a quick demise of said wealth...

I don't know all the tax implications around huge salaries like these, but every time I read one of these stories I always wonder why they don't just stick their money in t-bills or CDs. Something completely risk free that will get a modest return. If you have 20 million in the bank do you really need to invest in high risk stuff to try to double your money?

The problem is everyone they've ever known comes out of the woodwork and is hitting them up for money or pitching some great investment. That's the hard part. Saying "no" to these people.

Taxes are especially pernicious for athletes. Beyond the fact that they can't structure their income to get out of the top tax brackets like those in the business world (there's no stock compensation, dividends or anything else that turns their compensation into capital gains), athletes also have to file a state return and pay taxes for every state that they work in, and away games count as work.

But it's not really taxes that are the problem. ESPN's "Broke" documentary covered it well and it's a combination of many factors. Financial literacy is high on the list. One story told in the documentary has a rookie cashing his $500k signing bonus at a check cashing store because that's the only thing he knew to do with checks. When you're underbanked, simple things like t-bills or index funds and even checking accounts are a part of a completely separate world.

The second is lifestyle. When you're new to the league, everyone is buying expensive cars, jewelry and other frivolous purchases and there's pressure to keep up. And since you're traveling with your teammates, they're your social circle as well, so expensive meals out, clubs and other distractions on the road end up costing money. And being known to have lots of money makes you a target, both for people you knew before going pro and for women who see child support as a ticket to a better life.

And the common pattern is that players live it up and don't save much in the first half of their careers and then realize that there's going to come an end to the high income stream and that they need to make it last the rest of their lives, only to find that simple, stable investments aren't going to get them to a point where they can provide for everyone they feel responsible for once they're out of the league. So they end up chasing long-shot investments that almost always result in a total loss, making the problem even worse.

Some of this isn't much different from most people in other professions. The main difference is that athletes have their prime earning years during a time in their lives where they're still financially irresponsible. I know most of my friends didn't save much during their early-to-mid 20s. We spent way too much going out to bars and clubs, bought toys that were way more than we should have been spending and basically lived paycheck-to-paycheck despite the fact that we could've been saving a bit. These guys have that same period, just with a lot more money. But whereas the rest of us get to keep earning until we retire in our 60s/70s, often with the highest salaries coming near the end, these guys have their prime earning years end, often abruptly, usually well before the age of 40.

This is why there should probably be an early age pension system for these athletes. The major sports leagues could certainly afford it (and it would lower players upfront salaries some).

Agree. My young son was recently in a car accident. As part of the agreement with the insurance company he got some compensation. But this is in the form of an annuity with yearly payments when he turns 18. This protects him from parents looking to blow the money and from him blowing the money when he turns 18.

This might be a bit rude, but can I ask what the compensation here covers? It seems odd to me to receive compensation for an accident from 10-15 years ago, without anything in between?

All the US pro sports have generous pension programs.


I mean, it says right in the article. Besides the "friends" coming with "great investment ideas" that they have trouble turning down, the kind of person who becomes a pro athlete is often not the kind of person who thinks that investing your money in a mutual fund sounds like a good idea when they could be "swinging for the fences" doing something more tangible.

This sounds a lot like how most people go broke. Even when you are talking about people who have been fortunate enough to make a lot of money (like lotto winners), the story sounds the similar.

Maybe we need better financial education in the public school system?

Its not how most people go broke. Most people go broke because of health care costs.

I have an unsupported conjecture that critical thinking skills and financial literacy aren’t taught in (US) schools more or less intentionally. Financial literacy would harm the business models of institutions offering many types of loans, mortgages, lines of credit, etc. Truly educated consumers are harder to fleece.

Critical thinking dovetails with that, and would probably make it harder for ideological, religious, and political figures to “win hearts and minds.” In my experience parents want their kids to believe whatever they believe, politicians want vacuous morons, and ideologues only want to propagate their ideology. Giving people general tools to sort through the mess of competing ideas seems to appeal less than using the opportunity of education as a means of inculcation.

In short most people and groups want their own version of reality instilled as early as possible, and no others. A relative minority want critical thinking, financial literacy, and sound scientific principles instilled. It’s harder to take advantage of the prepared mind after all, and so much profit and power is gained through shallow blandishments and lies.

The biggest difficulty with that theory is that when people loose money to loan sharks they stop buying other things. So as far as either the national economy or the sum of all lobbyists (whichever you think the government is most beholden to) are concerned it's not good on average when people loose everything.

Average people don’t lose everything, they live in debt, and increase their debt.

Credit cards and student loans, medical bills and mortgages. People who make sound financial decisions don’t roll over debt on their cc’s, or allow for a housing bubble. They might be swayed by arguments that single-payer healthcare wouldn’t lower costs.

They might even question the value of spending trillions in Iraq and Afghanistan.

Myself and my sound financial decisions question nothing about Iraq/Afghanistan. HAL performed amazingly in that period.

Good investing, but arguably the harm to the overall economy would be difficult for you to compensate for over time. I’d also guess that you care about the wellbeing of others, in which case your personal enrichment is only part of the story.

Yes there's a big risk, because as we all know, humans are very predictable machines : once you teach them something, they consistently act accordingly. We can take as proof tobacco, obesity, sex ed, various addictions and various trendy denials.

Many humans would, unless you believe that the tobacco industry spent decades and billlions on FUD, bullshit research, and shady political dealing to keep people in the dark?

But since 20 years that this has all been debunked, we luckily have no more new smokers and everyone is working on quitting !

No amount of education can force behaviours into people. Logic is not a shared resource.

Logic is not a shared resource.

Clearly, given that this is your second round of reduction to the absurd.

People have known smoking was harmful since the 1960's.

Some people knew, others didn’t. “People know” is a nebulous and misleading concept. Today people know that vaccines are effective without causing autism, but um, yeah. Today people in much of the world don’t know or believe that smoking is harmful, and those places are the emerging markets for tobacco.

Besides, there’s knowing, and accepting. See AGW.

Edit: to clarify, people can be strongly influenced to disregard what is known in favor of what “feels right” or serves their perceived interests. Simply instilling knowledge in the absence of the ability to critically examine said knowledge is insufficient.

re financial literacy

Robert Kiyosaki and Sharon Lechter have been telling everyone who will listen since at least 1997.


re critical thinking

Years ago, one candidate for my state's Superintendent of Public Instruction aggressively opposed adding critical thinking and problem solving to the curriculum. It'd distract from all that useful standardized testing. She won. Served two terms (8 years).


Rich Dad Poor Dad ain't exactly peer-reviewed research or even solid advice for that matter. It's a lousy self-help book at best.

Yeah.. Any critical thinker could see Robert trying to influence people. He actually is in favor of MLM systems in it, the minute I read that I was instantly suspicious of him... I later found out for good reason.



Good grief. Embarrassed thank you. I've added Kiyosaki to my twit filter.

Happily, I'm sure if I looked a little harder, I could find other, more reputable, people advocating financial literacy.


> 'Mansplaining' by definition means that a man explains something the other person already knows.

No, it means a man explaining something condescendingly to a woman based on and conveying a negative, gender-based presumption of the target’s understanding and/or capacity for understanding.

While its most egregious when the matter is something where the target is an expert (and especially where the speaker is not, and is relatively clueless), that's not the essence of the term.

If I can't talk about, how am I'm supposed to understand? Do you think you can explain it to me without being condescending?

wow after reading this I have no idea why they were angry and annoyed. I bet you're positively charming.


You gave her $10. Of course she's going to say something you want to hear.


Are these long-term-thinking executives the same ones who can't see further into the future than the next quarter? You, know, the ones HN is always bitching about?

I didn’t say or intimate your formulation of “1”

Do you think that standardized tests generate spontaneously? SAT-De Novo edition?

The education system depends on student loans. Financial education would make people question the value of a college education.

That's fine. Educate 'em on financial literacy at public middle schools and high schools. Let the colleges and universities make the argument that their education is worth the cost.

College education pays back multiple fold though.

Instate tuition for top public universities is not that high, and helps you gain skills and even more importantly build a network that is certainly worth the investment.

Sure, there are many soft fields where job opportunities are sparse. But, a degree @ state tuition is certainly worth it for a good number of majors.

You're just making the GP's point for them. If you're focusing on public universities and ignoring private universities with their $30-40k/year tuition (federally subsidized, of course), you're already questioning the value of college education. Most students are not even taught to question the common assumption that expensive private universities are better than low cost public ones.

> federally subsidized, of course

Wait, could you explain what that means.

I thought private universities did not receive any government assistance at all. Do you mean subsidized loans to attend such universities ?

If so, I can understand. That might not be the wisest thing for a government to do.

The article also makes the comparison to lottery winners, but I don't think "most people" go broke because they opened too many car dealerships.

30 for 30 did an episode on this. It was so interesting and while true many get scammed out of their money, a lot more are spending it check to check.

Quotes from the show "I had more mortgages than HUD" "I had 30 to 40 cell phone contracts" "No athlete wants to earn a few percentage points in bonds. They wanna go for the big dollars, Open restaurants, clubs and car washes! They conquered sports now they will own their next endeavor"

Worst stat from the show: 60% of athletes are broke within 5 years and 70% are divorced within 3 years.

Shocking stat: There is (was?) a website that tracks athletes as they go from town to town so women can go hook up with them.

Many of these quotes are from the big money makers in various sports (NBA, NFL, MLB). They also interview the ones that were able to maintain their money. Like Jamal Mashburn who told his mom that he was going to set her up with a new house and car and before he could finish she told him to save it and take care of himself first.

> Quotes from the show "I had more mortgages than HUD" "I had 30 to 40 cell phone contracts" "No athlete wants to earn a few percentage points in bonds. They wanna go for the big dollars, Open restaurants, clubs and car washes! They conquered sports now they will own their next endeavor"

I mean those all sound like athletes either getting scammed or getting in over their heads with business endeavors.

I’ll assume for this conversation we are referring to black and latino athletes in the US. In that case, a lot of it comes down to family. A $10 million contract is a life changing windfall for a single unnattached person with no extended family to support, or whose extended family already is self sufficient (as a much greater proportion of white people in the US naturally are). But when you are the first person in your entire family tree to have above a 5 digit net worth, you immediately become liable for everyone, and it can quickly go to squat. Its called the “brown tax”. Escaping poverty can be almost impossible for an individual when they are weighed down by these obligations. It doesnt matter how financially literate you are when your aunt is being evicted from her apartment or your cousin needs bailed out of jail.

I get what you meant, but I would suggest being careful with language like calling white people 'naturally' self-sufficient.

A couple of things:

I can't manage to copy and paste it from the article, but one section talks about these guys hiring friends and family, not for their expertise, but as a favor. This inevitably goes bad places.

The old boys club is about knowing you well enough to vet you on two things: 1. How trustworthy you are generally and 2. What you are good at.

Having connections matters and if you can't establish those connections, you will go nowhere fast. But when it is at all healthy, establishing those connections is about vetting you. These athletes never got the memo. They haven't learned that the reason you hire someone you know is because you can literally trust them with your life, not because they need charity. If they need charity, give them charity. Don't entrust your millions with them.

Second, I really appreciate the section where they talk about divorce and that it often happens after retirement in part because these guys can no longer avoid the hard conversations. A lot of marriages seem to only work in X circumstances and to fall apart if circumstances drastically change. The two people are compatible as cogs in X machine, but the personal relationship isn't really that strong. They don't adapt well when that situation goes away.

"I can't manage to copy and paste it" control-shift-I in Chrome, then use the element-selecting arrow to highlight the element in the DOM containing the text you want to share.

I was there for a different reason: to figure out whether my browser was to blame for all the typos in this 9-year-old article ("Old habits diehard" being the one that set me on the quest.)

I am on a phone with an Edge browser. I usually can copy and paste. I don't know why I couldn't manage it that time.

tl;dr of the article:

Athletes have high earnings for short periods of time, but often prefer risky "flashy" investments (e.g. nightclubs) and aren't typically knowledgable regarding anything having to do with basic finance.

Its easy to invest a lot of money in a good way when you have no ego and all the time in the world to learn about investing. Professional athletes almost never fit that bill.

Everybody is being too nice. Athletics is hard, and is an almost full-time job for professional aspirations from 15 years old on.

Many of these athletes are semi-literate. And this has been going on in boxing, for time immemorial, for the same reason.

A means has to be found to better attack the perpetrators.

There was a podcast by Freakonomics where they tried to educate ex-NFL players about finance and economics. It seems one of the most important differences from the average person is that NFL players earn almost all their life's earnings in the first quarter of their lifetime

A mitigating factor is professional sports offer amazing retirement benefits.


Olympic athletes are known to sell some of their team clothes after the games. I overheard a well-to-do family at Mammoth saying they bought the jackets off some US Olympic ski team members who were broke.

I don't think Olympic athletes are typically making Big Four league kind of money, are they?

So many of these athletes feel that they are role models and civic leaders, yet they can't so much as balance a budget. Our culture glorifies these guys so much when they are much more like lottery winners than anything else. It doesn't take intelligence to be 6-8 and jump out of a gym.

This article is from 2009.

Still one of the best articles on the topic, and if anything, it's even more topical now with the continuous drumbeat of evidence on brain damage in pro sports since 2009 (note the bankruptcy imbalances between professional sports - the ranking goes about as you would predict...).

Thanks, we've updated the headline.

It works like this:

1) Increase your income

2) Increase your expenses

3) Lower your income, keep your expenses the same

Let me guess, getting your entire career salary in a lump sum before you're 30 and having the impulsive personality of an athlete doesn't mix well?

What's your basis for saying athletes have impulsive personalities?

Perhaps that could be better stated. Being a star athlete is highly correlated with having a risk insensitive personality. That type of personality also correlates with impulsive financial decisions.

I'm no sure if that's all true of if it's anything more than correlation, but it makes some sense as a hypothesis.

Being a star athlete is highly correlated with having a risk insensitive personality.

According to whom?

Ahh, I'm postulating a bit.

>I'm no sure if that's all true of if it's anything more than correlation, but it makes some sense as a hypothesis.

As I said, I could be wrong. But we know that other fields like management, fashion, music, etc are dominated by risk takers. It may not be true of sports or all sports, but you could imagine that a risk taking basketball player, football QB or running back, soccer forward, or similar players tend to be risk takers.

Again, I could be wrong.

Please stop explaining yourself. They're trolling you.

I'm not trolling here. The people I know who have been successful athletes developed as a result of discipline and hard work, not because of risk-taking, and certainly not to their own detriment.

I don't really mind, and it was only one comment. I'm happy to explain myself when I can add clarity.

The article, for one:

> Sometimes,though, a jock just can't shake the temptation to try to hit the jackpot. Butowsky believes that "there's something in an athlete's mentality"that drives him to swing for the fences financially--usually at his own peril."The solution to the problem is, without a doubt, education," the adviser says. "Change won't happen until grown men start wanting to learn."

Maybe not impulsive, but probably financially irrational. They invested thousands of hours of hard work into a career with very, very low expected returns. For every 22 year old millionaire, there are hundreds or thousands of very-nearly-as-good or better-but-injured people who went all-in but didn't make a living in sports after all.

People are crazy. But it's fun to watch them get so good at stuff.

Athletes almost by necessity must have a sort of magical thinking -- they must pursue their careers with determination, despite very low chance of success.

There's a strong correlation between testosterone and risk-taking. And there's a strong correlation between being a superstar athlete and testosterone

The news.

...because many go broke?


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