Some high earners are struggling to make ends meet at the end of the month, according to an internationally certified money coach.

There is a widespread misconception that the more money someone makes, the richer they become but, Luca Caruana told Times of Malta, he works with clients who became ‘poor’ specifically when they became ‘rich’.

They only ran out of money in their bank accounts and started accumulating credit card debts when their salary bumped up significantly.

“I have met people who changed jobs or got a huge promotion and their salary went from €30,000 to upward of €60,000 or even €80,000.

"When their salary was still relatively low, they would manage their money quite well but when they suddenly became richer they did not know what to do with the money and some of them ended up running out of it before they knew it,” he said.

“We wrongly assume that only ‘poor’ people have money management issues but high earners also struggle with it, and they are astonished to learn that when they were poorer, they were actually richer.”

Professionals in business, real estate, gaming, lawyers and lecturers, for instance, are among the high earners who struggle, Caruana said. When they realise they have suddenly become richer and they can now afford to buy stuff that they previously only dreamt about, they sometimes gorge on unsustainable shopping sprees of items worth thousands of euros.

“When they see their bank accounts swelling up, they sometimes forget where to stop or when and where to save or invest some of the money. Consequently, they accumulate more credit card debts, buy more stuff they don’t need and become more financially strained than when they had a lower income,” he said.

Some of them, he continued, start going to frequent expensive dinners and trips and buying high-end luxury cars and items, such as watches worth tens of thousands of euros.

“A fatter bank account often subconsciously convinces you that you are earning more money because you worked hard for it, so you deserve it.

"So, when you see the latest smartphone on display, you’re more likely to buy it straightaway because you feel you deserve it, whereas when you earned less you would have been fine with waiting another year before buying it.”

When they realise they are running out of money, they often spend longer hours at work or take up a second job, just so that they are able to maintain their new lifestyle, Caruana explained.

That only makes things worse because it adds pressure and does not solve the money management issue.

What is worse is that when the ‘rich’ life becomes too much to bear, it is often impossible for these people to return to their old jobs or lifestyles because by then they will have committed themselves to huge loans and they become unable to take up jobs which pay less. So, they are trapped in a vicious cycle.

Caruana, who provides financial coaching services, spoke to Times of Malta a few days after the education and family ministers launched a series of financial education courses for adults as part of the campaign Ġemma (Save money), aimed at creating public awareness and education on money management.

Furthermore, the latest available figures from an international study conducted by the Organisation for Economic Cooperation and Development (OECD) and the International Network on Financial Education (INFE) revealed that, in 2020, Malta was among the countries having the poorest financial literacy.

'Knowing how to make money not the same as knowing how to keep it'

Caruana said the government initiative is essential and the latest statistics go to show to what extent the educational system failed to instil financial literacy in students.

But he also warned that some high earners with money management issues would likely not attend such courses because they are overwhelmed with money shame.

“It’s still such a great taboo for high earners to admit to having financial difficulties to a group of other adults. They had the money and lost it, whereas low-income earners did not have the money to spend in the first place. And, in their view, their failure is more shameful,” he explained, adding that they fear being labelled, just like with mental health.

There is another misconception, he pointed out.

There are people who are naturally gifted and possess a great ability to make money. These people will make money out of almost anything, and, consequently, become very rich very quickly.

“But knowing how to make money is not the same as knowing how to keep it,” Caruana cautioned.

“Some people who have a great ability to make money also have a great inability to manage it and they frequently spend it irresponsibly or even all at once.”

It often boils down to psychological factors that stem from childhood experiences, he explained. If your parents had been low-income earners and were very cautious and disciplined with money, you will likely either mirror that behaviour when you get a salary bump or you will rebel against it and spend beyond your means.