Lottery Winners: Rags to Riches to Rags Again
The central finding is this: people who win large amounts are just as likely to end up bankrupt as people who win small amounts. People who win a large amount, $50,000 to $150,000, have a lower bankruptcy rate immediately after winning but a higher bankruptcy rate a few years later so the 5-year bankruptcy rate for the big winners is no lower than for the small winners. Amazingly, by the time the big winners do go bankrupt their assets and debts are not significantly different from those of the small winners.
More from Alex Tabarrok at Marginal Revolution
Fascinating.
Lottery winners going bankrupt. Hard to believe.
I’ve heard people who play the lottery described as being bad at math because the odds are so clearly not in their favor. The lottery is little more than a short-term burst of hope for the future (i.e. release of endorphins) for people who have little hope of rising too far above their station in life. Poor planning is probably how they got to their station in life. The idea they would blow their windfall rather than budget it for the future it easy to believe.
Money may bring happiness, but it doesn’t bring financial literacy.
Most people who are poor are poor not because of society or the evil corporations keeping them down, but because of some quality of their person. This is why handouts tend to not work long term. Giving someone a check doesn’t fix the flaw that otherwise prevents them from climbing the economic ladder.
Oh the other hand, people who are wealthy generally aren’t wealthy because they cheated the system, but because of some quality they possess. They don’t have to be highly educated, but they do need to be smart, financially savvy, and otherwise entrepreneurial or ambitious. The classic rich dad poor dad situation.
A really big check may allow the poor person to coast for a time, but unless they develop the qualities of the wealthy it will not end well.
Of course, you also have people who have inherited money. If they possess the qualities of their predecessors they may do well, if not their fate is likely the same as the lottery winner long term.
Or, to say it another way, building wealth slowly over time allows for someone to learn to be financially literate. Getting it overnight leaves no time at all.