Pointed questions were raised in the aftermath of last week’s disclosure that a quadriplegic had blown away his fat insurance payout on a spending spree.
IT’S incredible that a recipient of a financial windfall could blow away A$1.8mil (RM4.9mil) in just five years.
Why would anyone do that? Is it because they don’t know how to manage their money after acquiring it suddenly?
What can be done to teach them financial risk management? Who should be responsible for providing that lesson or guidance, especially to those who have, until then, received government handouts?
Should the government introduce a law to restrict how much such a recipient can spend from his sudden wealth for his own sake? And especially in the case of a young person? Or should the courts, after awarding the “true value” of a compensation award, appoint a financial adviser to manage the money for these people?
What are the implications of these radical proposals?
These are pointed questions that have been raised in the aftermath of last week’s disclosure that Stephen Lloyd, a 38-year-old quadriplegic who had used all the money from his fat insurance payout on a spending spree, has now won his case before the Social Security Appeals Tribunal to receive Centrelink handouts.
But his tragic fall from millionaire status to poverty is certainly of his own making. Centrelink told him so and initially refused to give him any welfare benefits until Oct 11, 2035.
That was because the compensation he had received after a car accident (he was a passenger in a car that hit a tree and rolled over on a lonely road in Laverton, about 500km northeast of Perth) was calculated on the basis of his age and what he would reasonably have earned if he was still working until retirement.
This was supposed to have given him financial independence for the rest of his life. He was then 29 and earning more than A$80,000 a year as a mine worker.
Lloyd, who has no family, admitted he had a comfortable life and had spent his wages on anything that fancied him. Apparently, he was a man who “didn’t count his penny” – an indication of his lavishness and carefree attitude. Nothing bothered him where money was concerned.
That, in essence, was his weakness. He didn’t worry about his future although he did appoint a financial planner and put A$900,000 in an investment scheme.
He had bought 100,000 shares in Chameleon Mining, which are now worth about A$3,500, and a house, which he later sold when he lost everything.
Lloyd admitted that investing to survive for the rest of his life was not really part of his plan. “I really thought I’d live another five years,” he explained. “I got through the five years and I thought I might like to live a bit longer.”
By then he had spent much of his windfall on prostitutes, horses, gambling, drinking sprees and some bad investments.
He calculated that he had spent at least A$100,000 on prostitutes for companionship and A$120,000 on gambling on the belief that his accountant would double the money.
In many ways, Lloyd was outrageously reckless. He even ignored his financial planner, who warned that he would soon become poor if he continued his spendthrift lifestyle. The financial planner left him after the investment lost A$200,000.
Nor did he believe that he would need help to plan his future.
When he was flat broke last year with only A$6 in the bank, he went back to Centrelink to apply for disability pension.
Centrelink rejected his application and told him to “try coming back in 29 years”.
Lloyd said it left him no choice but to challenge Centrelink’s decision. He subsequently won against Centrelink’s appeal in the Administrative Appeals Tribunal.
This may not be an isolated case because it is true that many people who have suddenly become wealthy do not really know how to handle their money.
However, this should not be an “acceptable” excuse for Lloyd’s reckless expenditure, says the tribunal deputy president Stanley Hotop.
The irony of it is that Lloyd refuses to accept the blame for his downfall, arguing that part of it is due to the system that has given him a “straight payout” without helping to look after it.
“I didn’t know what to do,” he stressed unashamedly. “I always had plenty of money and only me to spend it on.”
Maybe Lloyd has got a point there!
o Jeffrey Francis is editorial consultant, Australasia-Pacific Media