Many athletes don’t save enough for retirement and tend to overspend which is a quick way to bankruptcy. In fact, statistics show that 16 percent of NFL pros declare bankruptcy after retirement. Many players have serious financial problems and make series of bad financial decisions, spending millions on jewels, cars, and expensive homes. Divorce is often soon to follow, along with alimony and child support payments. And the fact is that the majority of retired athletes are divorced. There are financial obligations that even athletes cannot dismiss lightly – taxes and child support.
Why Athletes Go Bankrupt
For one thing, athletes owe millions in taxes on an annual basis but some pros choose not to pay. And the more money players make, the more they spend on expensive items, holidays, dining out, friends, and family. Many athletes have no long-term financial goals and fail to plan for the future. Planning ahead means good financial management and saving enough for retirement by investing wisely. The problem with athletes is that many of them lack understanding of basic financial concepts and what money management is about. Many sign million-dollar contracts at a young age when they have no credit exposure and are with no or little financial knowledge. Lack of financial knowledge often results in a series of financial mistakes that can lead to bad credit, foreclosure, repossession, maxed out cards, and eventually bankruptcy. Financial problems are quick to follow when you have bad credit. Loan applications are usually turned down by traditional lenders, and borrowers are forced to resort to other financial solutions with less favorable terms. Examples include payday and bad credit lenders that offer short-term financing with very high interest charges. Payday loans, in particular, require proof of stable income only. Lenders make no credit checks, and borrowers with poor credit qualify. While it is easy to get approved, high interest means a lot of money wasted on charges and financial problems progressively getting worse. At that, many pros encourage each other to spend more on luxuries and often go beyond their means. While it is true that athletes have a manager, they don’t hire them for their expertise or knowledge but because they are close friends. This means that managers are more likely to make costly financial mistakes that lead to even more debt and a host of other financial problems.
Credit cards are a convenient way to pay for goods and services without having to carry cash. They can also be a way to start building up a credit history. A credit card is like a debit card but with a credit limit, meaning you can use the card to buy items up to a certain amount. If you don’t pay off your balance in full each month, interest can accrue and it can be added to the balance. Many banks offer cards that are good for people with bad credit.
Common mistakes that athletes and people with little financial knowledge make include little life insurance, delaying saving for retirement, poor investment decisions, and not being prepared financially to deal with medical and other emergencies. Other costly financial mistakes include lack of or poor asset allocation, marrying a financially incompatible partner, and splurging on things you can do without. Obviously, there is a difference between important and urgent that many people fail to see. Financial pitches are yet another issue. Aggressive salesmen are usually recruited by insurance companies, mutual funds, financial institutions, and brokerage houses to try and sell structured products, portfolio management schemes, life and home insurance, mutual funds, and so on. They are quite convincing and can sell you pretty much anything, whether paying cash or credit, if you have little financial knowledge. People who earn a lot of money (like athletes do) tend to ignore small numbers but the fact is that unpaid bills pile up and result in a poor credit score. The same goes for saving. Saving small amounts over a long period can make a huge difference later on.