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#1
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Do 95% of all lotto winners go broke?
I've heard numerous times from numerous sources that 95% (or 75% or 50%, or whatever random percentage the speaker chooses) of million-plus lottery winners are in a worse financial state than prior to winning within five years (three years, ten years) of having won.
Any resemblence to reality? |
#2
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I can tell you that it is absolutely true with my uncle. He won 3.5 million back in the 80's. You had to take the annual payments back then. He burned through his first two years worth in 6 months and obviously had to borrow until the money came in. It was like that for 20 years. His payments ran out a couple of years ago and he has nothing left except half of a house that he will get in his upcoming divorce. He is literally on welfare now and has no health insurance despite being 62 years old and 120 lbs. over weight.
Winning the lottery can be one of the worst things that can happen to a person. Many people don't have the money management skills to deal with it. Unfortunatley, the people that buy a substantial amount of lottery tickets on a regular basis are the least capable of dealing with it if they do win. |
#3
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How come nobody who wins the lottery hires an accountant to keep them from overspending?
Adam |
#4
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Because the qualifications for playing the lottery are being ignorant of the principles of mathematics.
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#5
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Many people don't think of lottery winners as an actual finite amount - they think "I won a whole buncha money!" So they spend it. Then they find out they're spending it out faster than they're receiving it in. This is easy when you have family and friends pitching in to help. As for accountants, they probably had thousands of them come calling; but the odds that they found a reliable one are worse than the odds of winning the lottery in the first place.
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#6
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- - - Illinois began their state lottery in (I think) 1986. Within three or four years, they had established a special credit counseling agency for lottery winners--because so many of the "winners" were ending up bankrupt after just one or two years. Many couldn't keep track of their spending and banks and stores were too happy to extend credit to them. At least one jackpot winner was totally illiterate. At one point a study showed that the poorest 10% of the population bought 47% of all the lottery tickets. I bet if you looked up some of those early winners, many would be poor again.
- I don't know if the credit counseling agency is still in existence today, but I do remember religious groups pointing to the whole situation at the time as evidence that winners were being punished because gambling was the devil's tool, the state shouldn't be helping people sin, ect ect. ~ |
#7
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One time when I was in Toronto I saw a TV report about this lady who won the one of the Canadian lotteries (something like $3M). They get theirs lump-sum and tax-free.
Anyway she was effectively broke after a few years. She bought cars for a boatload of relatives (nice but foolish). But her main "crime" was to renevate her house (which was apparently in a lower class neighborhood). She did the most incredibly stupid things like change all her plumbing fixtures to gold, used imported marble to redo the insides. In a nutshell she pissed away a fortune in improvements that made her house unsellable. Who would buy a "mansion" in a poor neighborhood. It never occurred to her to sell her old house and buy a real nice house in a better neighborhood. She then had the balls to complain that the government didn't do enough to educate lottery winners to prevent dumb stuff like this from happening. |
#8
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Amazing, hopefully if I win the lottery, I would not make the same mistakes. So How do you ensure that the money could be stretched but still give you a comfortable lifestyle? |
#9
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Oddly, on Dutch lotteryshows I have heard the opposite happens. Many winners have trouble spending all of their money. They keep their jobs, and keep living in the same neighborhood. The mught buy a nicer car or do up their houses a bit and maybe take a good vacation, but that's it. Counseling from the lottery is aimed ad encouraging them to spend at least the interest they get, so the money doesn't pile up.
I've never heard stories about winners going broke in the Netherlands, and I'm sure the press would have been eager to print them if they had happened. But then again, Dutch society dislikes ostentious spending. Or weath. If you run around in New York covered in bling, everybody thinks "there goes a winner". If you do the same in Amsterdam, everybody thinks: "there goes somebody who doesn't pay enough tax and has piss-poor taste". |
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#10
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Remember, the first commandment of the wealthy: Thou shalt not spend principle. |
#11
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IANALW |
#12
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I think this is similar to many pro athletes and rock stars/rappers. Many times, these are those who have been poor for most of their lives. They receive a huge amount of money and they have no money management skills. Plus, they tend to spend the money on all the things they think the "rich" have. But, their view of the rich comes from movies and tv shows. Most millionaires don't have houses like MTV cribs or cars like Pimp my Ride.
Still, I can't find any reliable cites as to the exact percentage of Lottery winners who go "broke." I highly doubt Sen. Jim Jeffords will go broke from his Powerball winnings last week. |
#13
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If you google this you come up with stories of people who were left unhappy or worse off from their wins and others who are happy. The latter are usually from lottery websites, though. |
#14
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The MC Hammer Effect. He was worth millions and had all his relatives and friends on his payroll. He lost everything pretty much. |
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#15
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What poor people don't realize is that wealth brings on a new set of problems that they never had to deal with before. Yes, wealth will eliminate their current problems but people that get sudden wealth are oftentimes not prepared for the new problems they face. That's not to say that the problems of the wealthy are worse than the problems of the poor. Unfortunately, the coping mechanism of some people who can't deal with the new problems that they never foresaw is to put themselves back where they were. |
#16
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#17
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While the media gratefully whips up the stories of "lottery winners gone wrong" there are hundreds of million dollar winners every year and the large majority (I would think way over 95%) do not go broke. Winners in Australia generally don't sound like idiots who intend to piss it all away. Generally they talk about paying off their debts, buying a house or car maybe and looking after the kids/family.
The few people I have vaguely known that won large amounts in lotteries did very well out of it. Only one of them retired, the others just invested their ill-gotten gains. |
#18
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#19
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#20
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#22
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People who are chronically poor are usually poor for a reason. The cause is often rooted in irresponsibility (including financial irresponsibility). Poor people play the lottery in disproportionate numbers. Therefore, it should be no surprise that many people who play the lottery end up squandering their winnings away. |
#23
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Shagnasty: So what did your uncle blow the money on?
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#26
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#27
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Chris Rock's riff on the difference between "rich" and "wealthy" is relevant, here. The gist was that "rich" people buy stupid things like gold rims for their toasters, while "wealthy" people buy property. You can't get rid of "wealth", but you can lose "rich" after one bad summer and a coke habit.
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#28
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Bryan Ekers
To continue with Chris Rock's explanation: "Shaquille O'Neal is rich. The guy who signs his paycheck is wealthy." |
#29
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:: glances around at the people on the subway :: This would explain a few things. ![]() I would like to read a book describing the experiences of someone whio won the lottery big. It's next to impossible to google for the information though; all you get is "how to win big!" scam sites. |
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#30
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That's an interesting tidbit, about the Gentleman from New England (we're out of touch when out of the country).
In any case, I've always considered purchasing lottery tickets, but I always end up chickening out:
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#31
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#32
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The rule of thumb I heard is that if you're a poor money manager prior to winning the lottery, you're not going to do well. But if you're reasonably sensible with money, you might do OK with a lottery windfall. Also, prior to the recent $340 million Powerball drawing, a lottery official suggested that any winner first contact a good lawyer and a good accountant prior to claiming the prize. Of course, the difficulty is finding good advisers.
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#33
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While it's a valid point about the cost of lottery tickets being greater for the poor, relatively speaking, I recently heard an interesting piece on public radio pointing out how the benefits of winning are also greater. In other words, the gains for the senator are unlikely to change his lifestyle at all, but winnings can really transform the life of a poor person who wins.
This is why the purchase of lottery tickets by the poor makes sense from an economics perspective. People buy something when they perceive the benefit as greater than the cost. Sad, though, b/c perception in this case is often not much like reality. |
#34
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And you're right... we shouldn't be discussing opinions in GQ. |
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#36
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#37
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The other thing people commonly don't realize (or plan for) is that many of the expensive things we like to buy CONTINUE TO COST MONEY. Oh yeah great, you buy a phatty $5M house. Did you consider what the property tax is you'll be paying on that EVERY YEAR? How about a couple $300,000 Ferraris or Bentleys? That's gonna cost a lot to insure (and repair)? OK, so neither of these are really THAT expensive on their own, but they do keep costing money even after you've layed out the inital investment and can really add up.
There's a local charity raffle here in town (maybe 1 in 10,000) where every year they give away a $2M house. I've often considered that even though I'd love to live in it, if I actually won, I'd have to flip it immediately because I couldn't affort to pay even the 1st year's property tax. |
#38
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The thing that kills me about the lottery is how the big winners almost always decide to take the lump sum payment instead of the 20-year payoff. So they throw away some huge percentage of the cash--a third or more--so they can get it all in their grubby little hands at once. As if you couldn't possibly live on $5 million a year for the next 20 years. No, you have to take the lump payment of $60 million now. Idiots!
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#39
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#40
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#41
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Let's look at the CA lotto, suppose there's a $100M jackpot. You can take it spread out over 25 years (say $4M per year, although I think it's spread out unevenly - bigger payments in later years) or you can take a lump sum payout of about $50M. Quick back of the envelope calculation (rule of 72) says that if I invest that $50M at about 3.5%, in 25 years I'll have $100M. And as noted, government bonds (pretty solid) are just over 4.5% today - at that rate, I'd have $100M in just 16 years. You're living like a slightly lesser king for a bit (but still filthy rich) in order to reap a windfall a little down the road. And that's with some pretty tight earnings, you can certainly do much, much better. Even the state lottery admits that you can do much better than them at investing the money - they are required to keep the principal in *very* conservative investments. The trick is in not blowing it all on Lamborghinis and platinum bidets right off the bat. I'd get a good financial advisor and keep my head screwed on straight. |
#42
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"Rich" athletes are nothing more than lottery winners, too. Only the top 5% might have enough wealth to stay rich, or well off, for life.
Take a dope like Terrel Owens. He'll earn 25 mill over his career, 98% of that is NFL contract salary. He owns a 4.9 mill dollar home, with taxes around $40,000/year in NJ, and a similar or bigger home in Atlanta. 10 mill in property, and 100k in taxes....and all the other clothing, car, travel and home expenses keep coming, and coming, and coming. If I'd won 25 million, I don't think 10 mill would go towards two properties. Essentially, 25 mill is really worth 15 after taxes anyway. |
#43
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#44
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#45
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And the worst part is that if you're one of the rare exceptions who wins a big lottery prize and then is able to successfully invest your winnings and increase your money, you just end up crashing on a mysterious island trying to figure out what the crazy French woman is talking about and whether you should keep pushing the button.
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#46
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It is true, however, that $60 today might be more useful, today and in the near future, than an assured income over 20 years. The key is, "DISCIPLINE." If you have it you will do well in either case. Living where there are casinos on every corner I've walked past the Megabucks machines going to breakfast about a zillion times. As a retired accountant I felt the need to look into this and worked out a very detailed spreadsheet (since lost in the great computer crash of 'ought five). The prize of the time was about $40 million over 25 years or the pay out. I found that living on half and investing half (or something like that I forget the specifics now) gave you a better after tax position from year one through year forever. But you gotta have that discipline. |
#47
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#48
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And the chicken restaurant where you work gets hit by a meteor.
--Cliffy |
#49
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#50
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I know if I won a huge jackpot (say, $25 million after taxes), I would have a small spending spree, then invest the rest and live off the interest. I'd buy a nice house (not anything massive, but a nice, well made home in a good neighborhood, probably about 3000 sq feet....big, room to expand with a family, but not insane). I'd buy a solid sedan (Toyota Camry or Avalon or something), a truck, and my dream car: a 911 Turbo (my only REAL luxury). I'd also buy enough photography equipment to last me my life. After furnishing the house, etc, I figure I'll have spent around $2-$3 million tops. The other $22 million goes into an investment, and I live off the interest, without having to worry about car or house payments.
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