The media is filled with terrifying stories about bankrupt and unhappy lottery winners. However, sociologist H. Roy Kaplan conducted two famous studies on lottery winners, including 576 winners in the second study, and discovered that most were doing fine and feeling happier than before. But what do their finances look like after a few years? Let’s hear it from the experts!
Lottery Winners Going Broke: What Statistics Say
While there are so many chilling stories about people losing everything after winning the lottery, it’s hard to tell what exactly happens to them. You’ll find the best research on lottery winners below, and we’ll start by dispeling a common myth.
The stat that 70% of lottery winners go broke—is a myth.
The NEFE states that this statistic is not provided by its research and that it has instead survived on the Internet on its own, after it was allegedly stated at a conference that NEFE took part in. However, the truth is that not many lottery winners end up bankrupt.(NEFE)
The percentage of lottery winners that go broke is 5.7%.
A study by Vanderbilt University analyzed almost 35,000 lottery winners in Florida and discovered that in the five years after winning, the percentage of lottery winners that were bankrupt was 5.7%, or 2,000 people. Given that the study focused on people who won $600 and upwards, the percentage is not high at all. (Vanderbilt University)
Mid-amount winners in financial distress are likely to postpone bankruptcy.
The percentage of lottery winners that go bankrupt rises as the checks become smaller. Financially distressed people who won up to $10,000 were not likely to get much help from the winning, while people who got between $50,000 and $150,000 were still 50% more likely to go bankrupt compared to the average person three to five years after the win.(Vanderbilt University)
Only 1% of winners spent all their money on parties.
When it comes to lottery winners going broke, statistics show that only a small percentage spent their money in a typically imagined way, throwing insane parties and running through the millions in only a few years. In fact, according to Kaplan, not even 10 out of 900 people in the study (including spouses) spent their money in this way, which is just slightly over 1% of the sample.(Berkeley)
33% gave different amounts to their children, and 17% gave it to their relatives.
The majority of lottery winners gave some of their money to family, while 10% gave it to charity and their church. The biggest expenditures included homes (bought by 23%) and renovating their current places (20%). In short, most lottery winners weren’t broke and they didn’t spend crazy amounts on luxury.(Berkeley)
Only 23% of people who won at $1 million or more quit their jobs.
It’s not just that most lottery winners don’t go broke, but statistics show most of them keep their jobs, too. The study also showed that, perhaps surprisingly, none of the people who won less than $50,000 quit their jobs. Kaplan’s study suggests that while the amount of money people owned did change overnight, their lifestyle remained relatively stable.(Berkeley)
17% of lottery winners used their winnings to pay off debts.
Although the study included only people who got annuities, it showed that most lottery winners behaved responsibly: 17% paid off their debts, 3% got further education, 37% invested in stocks and real estate, while 2% opened new or improved existing businesses. While some of the investments did fail, the fact that people got annuities saved them from losing larger shares of their winnings. This is why taking a lump sum is one of the biggest mistakes lottery winners can make.(Berkeley)
The neighbors of lottery winners are more likely to go bankrupt than the average person.
An interesting research found that lottery winner bankruptcies were more likely to affect—the neighbors. The research found that each $1,000-increase in the lottery prize corresponded with a 2.4% rise in bankruptcies among the closest neighbors. Turns out, keeping up with the Joneses is where the true lotto horror story is!(Federal Reserve Bank of Philadelphia)
So if you’ve been wondering what happens to lottery winners, statistics show that winners are not very likely to go bankrupt. Situations that studies have shown as dangerous include winners that already had been in significant financial distress combined with low winnings. However, a significant part of these stats was based on winners who got annuities, so it’s safe to say that it’s the wiser choice for people who are not certain of their financial skills and discipline.