Blessings (and Burdens) of an IPO Windfall
Transitions, even positive ones like a financial windfall from an IPO, can be overwhelming. You may be uncertain about what to do with your upcoming windfall from your company’s IPO.
Let’s focus on the longer-term (and perhaps unexpected) ripple effects of the IPO. I’ll also cover money scripts to see how your early beliefs about money may be driving your financial decisions.
Being the Rich Relative
If you’re feeling stressed about the Snowflake windfall, who can you turn to for sympathy? Your friends and family probably won’t understand. In fact, your new wealth may affect your relationships with your family and friends.
If you have a family member who’s struggling with addiction issues, do you want to provide financial support?
If a cousin comes out of the woodwork for a “loan,” what will you do? If they use the money on a wasteful purchase (from your point of view), will you be annoyed? Do you expect to be repaid?
What if parent-child roles change? If your parent lost their job during this recession, you may want to help financially. But your parents might be uncomfortable with the role reversal of having to rely on their child. I’ve seen this dynamic with some of my clients and their parents.
Being the Rich Friend
If you can now afford first-class flights and hotel suites, but your friends are on a tight budget, how will you want to handle this? Maybe you’ll be okay with paying for everything. But your friends might be uncomfortable with accepting subsidies. This reminds me of the Friends episode, The One With Five Steaks and an Eggplant, where the rich friends (Chandler, Monica, and Ross) and poor friends (Rachel, Phoebe, and Joey) discover their vastly different financial situations and social expectations. The cultural references are dated (they fight about Hootie and the Blowfish concert tickets), but the topic is very much relevant today.
Glamour wrote a funny commentary about this episode a few years ago.
Raising Kids Without Spoiling Them
You’d been to an airport? Your parents must’ve been rich. They could afford plane tickets.
Tiffany Haddish and Chris Pratt were promoting the Lego Movie 2 when they discussed their first celebrity encounters in this Buzzfeed video. When Pratt was 10, he met Macho Man Randy Savage at Seattle-Tacoma airport. Haddish, on the other hand, barely had her basic needs met as she endured much trauma and dysfunction in her childhood.
What if you’re now able to afford not just plane tickets, but first-class seats, private school AND private college tuition, and a weekly house cleaner to clean the kids’ rooms? Will you be setting up your children for disappointment when they leave the nest and discover how hard it is just to pay their basic bills?
I don’t have the answers to these difficult questions. But I hope I’ve prompted you to think about how this IPO windfall may impact you beyond the tactical questions like, “How much will I have to pay in taxes?”
Money Scripts
What are your earliest or most salient money memories from childhood? Your core beliefs about money developed early. And they unconsciously influence your financial behavior as an adult. These beliefs may span several generations.
“Money scripts” often develop in response to an emotionally charged event, such as eviction/foreclosure, significant losses during a recession, or parental abandonment. You may be unaware of the power your money script holds, even if they’re self-destructive.
Financial psychologists, Brad Klontz and Ted Klontz, coined the term “money scripts.” Their research has identified four types:
- Money avoidance
- Money worship
- Money status
- Money vigilance.
Money Avoidance
A money avoider views money negatively. They believe that money is bad, or that they don’t deserve money. They view wealthy people as greedy “bad guys.”
Money avoiders may sabotage themselves by overspending or sacrificing their financial well-being for the benefit of others. They also avoid looking at their financial statements. If you’ve found yourself avoiding logging into Solium, you may be a money avoider.
Money Worship
They believe the cause of, and the solution to, all of their problems is money. Money worshipers think that there’s no such thing as “enough money.”
The danger of money worshiping is that they believe more money and possessions will make them happier. They’re more susceptible to chronic overspending in an attempt to buy happiness.
It may be difficult to know What’s Enough. And you may be tempted to continue running on the hamster wheel, waiting for the next batch of ISOs to vest in a month, or the next batch of RSUs to vest in a quarter.
Money Status
Money status script holders equate net worth to their self-worth. They may pretend to have more money than they actually do to uphold a financially successful image.
People with money status beliefs are more likely to spend compulsively. They also are likelier to lie to their spouses about their spending.
Money Vigilance
The money vigilant are watchful and worried about their financial well-being. They believe in working for their money, and saving. Financial handouts are against their core beliefs. They’re careful about spending, and so the money vigilant tend to have higher income and higher net worth.
They also tend to be anxious and secretive about their financial status. While there are merits to saving and frugality, the money vigilant may not enjoy the benefits that money can provide.
Additional Resources
Next month, I’ll be writing about preparing for the emotional roller coaster as you wait for the lockup to come off.
In the meantime, here are a few books that you may enjoy:
- We Need to Talk: A Memoir about Wealth by Jennifer Risher. She and her husband were early employees at Microsoft and Amazon. She describes the impact of their immense new wealth on relationships with friends and family. She also references the discord between her Money Avoidance script and the giant windfall from their company stock.
- Overwhelmed: Coping with Life’s Ups and Downs by Nancy Schlossberg. She spent most of her career as a professor of counseling psychology. I like this book because she provides a structure for approaching transitions, whether they’re expected or unexpected, or positive or negative.
- Money Mammoth: Harness The Power of Financial Psychology to Evolve Your Money Mindset, Avoid Extinction, and Crush Your Financial Goals by by Brad Klontz, Edward Horwitz, and Ted Klontz. This book was just published on November 11, 2020. I haven’t yet read it, but Brad Klontz and Ted Klontz are the financial psychologists who coined the term “money scripts” discussed above.
DO YOU WANT GUIDANCE ON NAVIGATING THE RIPPLE EFFECTS OF THE SNOWFLAKE IPO? SCHEDULE A CONSULTATION IF YOU’D LIKE TO WORK WITH A COMPREHENSIVE FINANCIAL PLANNER WHO SPECIALIZES IN EQUITY COMPENSATION.
