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?
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.
How come nobody who wins the lottery hires an accountant to keep them from overspending?
Adam
Because the qualifications for playing the lottery are being ignorant of the principles of mathematics.
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.
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.
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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.
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?
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”.
A safe way would be to invest the whole thing in government bonds. The current 10-year bond rate is 4.5%, which on $3 million would give you an annual “salary” of $135,000. And as long as you only spend the interest and never spend from that original $3 million, that salary will keep coming (with variations according to interest rate changes) for the rest of your life and your childrens’ lives.
Remember, the first commandment of the wealthy: Thou shalt not spend principle.
Additional tip for those who find themselves in this situation: Practice saying ‘no’. Practice and practice. You’d probably have to say it a lot… (to family, friends, general acquaintances who come asking to borrow money, wanting you to invest in their business idea, etcetera etcetera.)
[sub]IANALW[/sub]
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.
That’s going to be the tough part of this question, at least from a GQ perspective. There’s not much “news” in: Local man wins lottery, lives normal, happy life. I recall a book several years ago where the thesis was that most people who win the lottery do okay and are happier than before. But that’s not as exciting as the schadenfreude of watching a lottery winner go broke or have a string of personal disasters.
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.
The MC Hammer Effect.
He was worth millions and had all his relatives and friends on his payroll. He lost everything pretty much.
But you are failing to understand the mentality of people that are using their capital to buy lottery tickets in the first place. They are not investors, they are gamblers and wishful thinkers.
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.
Especially since it was Sen. Judd Gregg who won. (Sorry, nitpick.)
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.
Tiny nitpikc: Never spend the principal. A fine distinction, but one I think should be drawn.
Whoa, so it was a senator that won the big Powerball prize from last week? That’s kind of a let down.
No, it somebody in Oregon. A senator, and in this case I think it was a state senator, who is already a multimillionaire, had a winning ticket on the secondary split. I think on that lottery it’s five correct without the “powerball” (or whatever) and he won about $800,000+. I heard this on NPR as a blurb, something about the rich getting richer.