“Wealthy” face financial stress from poor risk management too

This weekend we watched the documentary The Queen of Versailles, now available on Rogers on Demand. Garish and over-the-top in many ways, I found the film a useful reminder of the downside of leverage and the self-destructive financial habits that are common to varying degrees in human behavior.

The Queen of Versailles is a character-driven documentary about a billionaire family and their financial challenges in the wake of the economic crisis. With epic proportions of Shakespearean tragedy, the film follows two unique characters, whose rags-to-riches success stories reveal the innate virtues and flaws of the American Dream. The film begins with the family triumphantly constructing the largest privately-owned house in America, a 90,000 sq. ft. palace. Over the next two years, their sprawling empire, fueled by the real estate bubble and cheap money, falters due to the economic crisis. Major changes in lifestyle and character ensue within the cross-cultural household of family members and domestic staff.

Here is a direct link.

In a related story, CNBC reports on how the “wealthy” are using pawn shops as a revolving line of business and personal credit. Financial duress and desperate choices are not just for those with low incomes. Here is a direct link.

The irony is that most people see a sudden downturn in their fortunes as the fault of one particular external event that comes out of nowhere and throws them into duress. The truth is that leverage, poor to non-existent risk management and lack of financial discipline are the main culprits that routinely leave people (and over-optimistic markets) vulnerable to financial shocks.

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4 Responses to “Wealthy” face financial stress from poor risk management too

  1. Andrew says:

    My experience is that people who can afford to take risk, like teachers who have inflation indexed pensions, take the least risk and have portfolios of GICs.

    Entrepreneur types often put their hard earned cash in risky portfolios when they are often the most exposed to economic weakness.

    It surprised me still when in the movie, after their fortunes took a turn for the worse, they said they had no money saved for their 8 kids education.

  2. John C says:

    Interesting report from CNN, but of no value as an economic indicator. As for the Queen of Versailles, you don’t need hard economic times to have stories of rich people who get reckless with money. Without having watched the doc, I surmise it has more to do with stupidity than actual poor risk management.

  3. mommybomm says:

    Rich or poor, its good to have a lot of cash. Good advice.

  4. Roberta says:

    It’s too bad that people who suddenly get a lot of money easily will not recognize the gift they’ve been given and sock some of it away in some kind of “safe” investment for a rainy day. It is particularly painful to watch for those of us who could live their entire lives without working and worrying on a small fraction of the money “rich” people waste.

    In an unrelated note, I can recommend the recent movie by Clint Eastwood: “The Trouble With The Curve”. It’s a movie about a baseball scout.

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