September 9, 2011

Lottery Winners Don't Automatically go Bankrupt

Did you know that winning millions of dollars in the lottery can actually increase your wealth?   Its a little known fact.  Of course if you read the news stories about lottery winners they all seem to be about people who lost all their money in a few years and ended up bankrupt and drunk in a ditch somewhere.      It almost seems that its an accepted fact that winning the lottery will make you go bankrupt.  I don't blame the press for reporting on the bankrupt lottery winners.   A story headline about someone who won millions and lost it makes for interesting reading.   On the other hand a story about someone who won millions and then still had millions a few years later isn't all that compelling of a topic.   Imagine that headline "Local Lottery Winner Still a Millionaire".   Not exactly news is it?   Just like "Man Stabbed by Burglar" is news but "Man Sits in Home Quietly Watching Television then Goes to Bed" is not news.

I also think theres a bit of 'sour grapes' involved.    Doesn't everyone really secretly want to be rich?   Hasn't everyone fantasized about having a big pile of money to do whatever they want in life?   Ok, probably not everyone but I bet 99% of us have.   So when you hear about a rich lottery winner you can get a little jealous.  I want to win the lottery.  If I hear news about how the lottery allegedly ruined someones life then that makes me feel a little better about the fact that I haven't won the lottery myself.   Thats 'sour grapes' thinking right?   I didn't really want to win the lottery cause doing so just makes you go bankrupt.

There is the story of Successful Lottery Winners from MSN.   One year later, Powerball still treats them well
about some happy lottery winners.   I've also occasionally caught  The Lottery Changed my Life television show which tells the story of many successful lottery winners and how winning the lottery has improved their lives.   Yes clearly there are many lottery winners out there who are doing just fine.    Many others are avoiding the spotlight.   One of the things you often hear about winning the lottery is that it causes many people to come to you seeking free money, trying to sell you investments or otherwise trying to get some of your money.  So if you're smart you'd do what you can to avoid that spotlight.

Now having said all that, I do believe that there are many lottery winners who do go bankrupt.   Many people don't know how to handle their finances.   Something around 50% of Americans life paycheck to paycheck.   More often than not that is due to poor financial habits as much as anything.   When those same people get a large windfall they are likely to mismanage it just like they used to mismanage their paychecks.  Winning the lottery doesn't make you magically good at dealing with money.   Many if not most people just aren't very good with money to begin with and so a lot of lottery winners are not good with money.

People who have large windfalls also have a tendency to go overboard with spending since they are now rich they feel they can spend whatever they want, cause they are rich after all.   The hard part is properly managing the money so that it lasts.   If you take home a giant jackpot of $10,000,000 then you may get an invincible feeling that you have enough money to last forever.  But its really not hard to blow $10 million in a few years.  Not hard at all.  And you don't even have to go extremely overboard buying private jets or using inverted Jenny stamps* to send post cards.   If I gave you $1 billion tomorrow I doubt you'd worry too much about how you spent it since that amount of money is so large it feels as if it will last forever.    $1 billion may very well last forever past how fast you could reasonably spend it.   In a lot of ways $10,000,000 may feel like as infinite as $1,000,000,000.   yes theres more zeros in a billion but theres a whole lot of zeros in 10 million too.   Enough to last a long time.

Lottery winners really shouldn't go bankrupt, but they sometimes do.   We only tend to hear the stories of the bankrupt lottery winners since the story of lottery winners who aren't bankrupt isn't news.  

* Just for fun... I'll give $10 to the first person who can tell me where I got the inverted Jenny stamp reference from.  Just leave a comment below.  You can use the $10 to buy some lottery tickets.

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