The paradox of wealth: Why the wealthy worry about losing it all

Sometimes, it can be tempting to think that if you had a certain amount of money, your worries would go away.

But many people with this mindset find that as their wealth increases, so too does the number that is 'needed' to feel secure.

In a world where many dream of financial security, there exists a paradoxical fear among the wealthy...

The fear of loss.

Imagine having £20 million, but constantly feeling a need to earn more.

Now imagine having £100 million - would you still feel that way?

Many do. And it keeps them awake at night.

But doesn't wealth automatically bring peace of mind?

Up to a point. Research published in 2023 by Matthew Killingsworth, Daniel Kahneman and Barbara Mellers found that, for most people, wellbeing keeps rising as income rises. Each extra pound adds a little less than the one before. For the least happy fifth of people, the gains stop beyond a certain income. 

It all comes down to the psychology of the wealthy, the roots of their fears, the impact of loss aversion, and how childhood and life experiences shape their relationship with money.

So why do people with more money than they'll ever need still worry about losing it? And what, if anything, settles the fear?

Before the detail, the points that matter most:

• Wealthy people often worry about losing money because the number that feels secure tends to rise with the wealth itself. The fear is rarely about running out. It's about what the money has come to represent.
• Loss aversion, described by Daniel Kahneman and Amos Tversky in 1979, means a loss tends to hurt roughly twice as much as an equal gain pleases. At £100 million, a £10 million fall can feel like a threat to identity and standing.
• A 2023 study in PNAS found wellbeing keeps rising with income for most people, though each extra pound adds less. For the least happy fifth, it stops rising beyond a certain income.
• Money beliefs formed in childhood, often called a money personality, sit underneath most financial decisions. They tend to show up as indecision, procrastination and financial drift.
• More wealth rarely settles the fear. A plan that's clear about what the money is for, with someone accountable for it, usually does more than the next million.

Why the fear of losing wealth grows with the wealth

The scarcity mindset

The scarcity mindset is a subconscious belief that you have limited resources or are unable to provide for yourself or others. It haunts people at every level of wealth. 

Maslow's Hierarchy of Needs helps explain why. Even with substantial wealth, the three levels above physical needs and safety can remain elusive:

• Love and belonging: This level encompasses the need for affection, intimacy, and acceptance from others. Can it be bought? Perhaps momentarily, but genuine connections are beyond the reach of money. Social poverty can hit even the wealthiest person.

• Esteem: The desire for respect, recognition, and achievement is inherent in human nature. While money can buy a semblance of it, it's  akin to buying a fake, a fleeting imitation of true self-worth.

• Self-actualisation: The need to reach one's full potential and live a meaningful life is a pursuit that transcends money. True fulfilment simply can't be bought.

But there are deeper fears.

Beyond Maslow's Hierarchy, the wealthy struggle with core human fears that no amount of money can ease.

The fear of irrelevance, insignificance, and being forgotten.

The fear of unworthiness, unlovability, and loneliness.

The fear of being a bad person.

Paradoxically, the pursuit of wealth often stems from a desire to bury these fears.

Loss aversion: why a fall feels bigger than a gain 

The fear of losing it all is deeply rooted in loss aversion.

Psychologists Amos Tversky and Daniel Kahneman identified loss aversion in their 1979 work on prospect theory. It's the tendency to feel the pain of losing something more acutely than the joy of gaining the same thing. Losses are often estimated to weigh around twice as much as equal gains.

This emotional response is hardwired into the human psyche and significantly influences decision-making, particularly in financial matters.

For the very wealthy, loss aversion is not merely a theoretical concept or numbers on a balance sheet, it's a visceral experience that can evoke profound anxiety and distress.

It becomes intertwined with their identity, status, and sense of self-worth.

A perceived threat to their core being.

Imagine someone with £100 million in assets.

To them, the thought of losing £10 million might not just be a reduction in wealth; it could be perceived as a blow to their social standing, a dent in their self-esteem, and a threat to the respect they command.

The fear is not only of financial loss but also of losing the lifestyle, the influence, and the recognition their wealth affords.

This emotional response is further intensified by the public scrutiny that often comes with great wealth.

The fear of being judged, ridiculed, or pitied in the event of financial setbacks can be paralysing.

As a result, the very wealthy may find themselves trapped in a constant struggle between the desire to protect their wealth and the fear of the psychological toll that potential losses might inflict.

Loss aversion can also be made worse by the perception that financial success is a reflection of personal competence and superiority.

For some, the fear of financial decline may be intertwined with the dread of losing a symbol of achievement and societal validation.

The prospect of going from "financially successful" to "financially struggling" can be a devastating blow to their self-esteem.

This is often an underlying reason for indecision, inaction, procrastination, internal resistance, apathy, wrong decisions and the ultimate cause of financial drift (that typically takes your finances in a downward direction).

Addressing loss aversion requires more than just financial advice; it demands a nuanced understanding of the emotional landscape that accompanies wealth.

Good advice has to account for that emotional side, as well as the investment strategy. 

Where your money beliefs come from

What is a money personality?

A money personality is the set of unconscious beliefs you hold about money, often shaped by childhood and life experiences. It can be a driving force behind your mindset.

In reality, people often make flawed financial decisions based upon their own unique view of the world; where ego, pride, marketing, and odd incentives are scrambled together without an underlying awareness of what's driving them.

Some flourish, many drift, others flounder.

Those who grew up in financially unstable environments may develop a heightened aversion to loss, driving them to accumulate wealth as a protective measure. On the other hand, individuals who experienced abundance may view money differently, perhaps with a more cavalier attitude that contributes to other financial challenges.

Your money beliefs significantly influence your financial well-being.

Why more money doesn't settle the fear

The usual response to a fear of loss is more protection. More diversification, more cash, more insurance, another structure. Some of that's sensible. None of it reaches the belief underneath.

The fear of losing wealth tends to live in the gap between what the money is for and what it's doing. When nobody has written down what the wealth needs to fund, every fall in value feels like a threat to all of it. When the purpose is clear, a fall becomes a number to manage, measured against a plan that already allowed for it.

The people who seem calmest about their wealth are rarely the ones with the most. They know what it's for, how much of it that purpose actually needs, and who's keeping an eye on the rest.

Financial Life Management, the discipline AES practises, works in that order. Purpose comes first: the life you're building and the people you're providing for. The plan follows from the purpose, and the portfolio follows from the plan.

Loss aversion doesn't disappear. The instinct just has less to grip when each decision can be checked against something written down.

A plan like that also changes who carries the weight. An ongoing advisory relationship, reviewed as life and the rules change, gives the worry somewhere to go other than the small hours.

Security tends to come from knowing what the money is for.

Where this leaves you

The fear of losing it all doesn't usually fade at the next milestone. The number moves, and the worry tends to move with it.

A clear answer to what the money is for tends to change the feeling. Once that's written down, most of the noise has something to be measured against.

It's worth being honest with yourself about which beliefs are steering your decisions. Some of them were formed long before you had anything to lose.

Common questions about the fear of losing wealth