When we think of bankruptcy, we normally conjure up images of endless shopping sprees, maxing out credit cards and generally living above one’s means. Interestingly, the average American seems immune to this condition, with research indicating that medical debt is officially the number one reason why people file for personal bankruptcy. In this post, we discuss a few recent celebrity bankruptcies or near-bankruptcies, highlighting the fact that in the end, celebrities are more like normal people than they seem.
Heartthrob Aaron Carter, for instance, went bust in 2013 after failing to pay the IRS money owed in 2013 (when he was just 15!), while Toni Braxton received less than $2,000 in royalties from her first recording contract. Both cases clearly involve a lack of financial literacy and, perhaps, trust in advisors and companies that failed to take the artists’ best interests into account. More often than not, bankruptcy isn’t the result of being a spendthrift, but rather, of a lack of provision for the future and poor money management.
Bankruptcy statistics in the U.S.
The number of bankruptcies filed in the U.S. has risen exponentially over the past three decades, hitting an all-time high in 2005 (when over two million cases were filed). In addition to medical expenses, job loss, unexpected expenses and big personal changes such as divorce, are common causes of bankruptcy. In many ways, many of us still need to work on improving our financial awareness.
CNBC recently reported that credit card debt has hit a record high, with the average American having a credit card balance of $6,375, up 3% from 2017. Many Americans are aware of how other options to gain funds – such as personal loans – can reduce amounts owed by relying on fixed rather than fluctuating interest rates. In essence, credit debt is hampering our ratings and making us poor bets for financing, which in turn reduces the likelihood that we will step out of financial holes. Setting a budget, relying on finance apps, and negotiating well with financial institutions are just a few steps we can take to keep our heads above water.
Different strokes for different folks
Lady Gaga is a perfect instance of how well-planned risk-taking can lift one out of dire straits. The Poker Face singer put every cent she owned into the staging of her Monsters Ball tour, attracting the attention of Canadian music promoter, Arthur Fogel’s, who signed her a check for $40 million. Today, Gaga is worth an astounding $275 million, not bad for a lady who likes to take professional as well as artistic risks.
The case of rapper 50 Cent is one of mishandling at its best. 50 – whose real name is Curtis Jackson III – filed for bankruptcy in 2015, but made the headlines recently when he claimed to have made a mint off an investment in Bitcoin. 50 laughed in the face of detractors, claiming to have invested in the famed cryptocurrency when it had just hit the market. He later admitted in court that he had never invested in the cryptocurrency and was still very much burdened by the state of his finances.
Recipe for disaster
Successful British Chef, Jamie Oliver has penned various best-selling cookbooks and revolutionized the way families cook, but did you know that he went bankrupt after the launch of his first book? He refrained from “squirreling away” the proceeds from his first book, The Naked Chef, and went officially bankrupt for a three-week period: a secret he kept hidden from the press until recently. According to the Mirror, in 2017, he closed six of his Italian restaurants, with his company currently fighting to overcome a £9.9 million loss. Jamie is still worth a whopping £240 million, though clearly, even the most successful chefs in the world are subject to market swings, stiff competition, and the rising costs which resulted from largely unpredictable events such as Brexit. Currently, the Chef’s remaining restaurants remain financially strong, and his media activities and licensing operations are looking as strong as ever.
Issues such as over-reliance on credit, lack of financial planning, and thoughtless spending affect celebrities and everyday people alike. Although risk is a crucial component of business success, spending thoughtlessly (ala Johnny Depp, who spent $3 million to blast Hunter S. Thompson’s ashes from a cannon) or failing to save following initial success, can result in the fall of an otherwise healthy business or brand. For celebrities as for everyday people, receiving sound financial advise and keeping savings levels high will ensure they have something to fall back on when unexpected financial woes arise.