Why Many Lottery Winners End Up Broke
A joke goes that if you want to get back at your enemies, give them a lottery ticket. As amusing as that joke is, it perfectly encapsulates the pitfalls of winning the lottery. It’s hard to believe, but many lottery winners tend to end up broke – some faster than others. But why is that?
It’s easy to pin this on the so-called “Lottery Curse” but there’s actually fairly logical explanations behind it all—and in this article, I take a hard look at what those are. Come join me!
How and Why Do Lottery Winners Go Broke?
Losing One’s Sense of Reality
There are many reasons why lottery winners end up worse off than before they were rich, but it usually boils down to one thing: mismanagement. That is, a lot of people don’t really know how to handle all that money.
Surely, many people aren’t that careless, right? You’d be surprised. And besides, managing millions is entirely different from balancing the monthly budget. You have to take into account other factors, too – like simple emotions, for instance.
Steve Lewit, Wealth Financial Group CEO, puts it best: “People who were little, ordinary people, all of a sudden become extraordinary. They're euphoric. They lose all sense of reality. They think they're invincible and powerful. They think they're Superman.”
In other words, many lottery winners tend to let their emotions get the better of them. They think they have a bottomless well of money that they can tap into, which is why many develop nasty spending habits right after winning big. People become careless because they think, now that they are millionaires, that they can spend willy-nilly without serious repercussions.
Family, Friends, Colleagues
Believe it or not, most financial advisers agree that the biggest problems that lottery winners face are their family and friends. You may not fall into the trap of thinking your wealth is infinite, but escaping family or friends is another matter entirely. This one is a lot trickier.
Senior financial planner at Szarka Financial Charles Conrad says, “Once family and friends learn of the windfall, they have expectations of what they should be entitled to, and many of these expectations are not rational.” It sounds rather pessimistic, but it happens. Just ask Sandra Hayes, winner of the 2006 Missouri Powerball pool.
Not long after winning the $224 million prize, her friends began leaving not-so-subtle hints that they expected Sandra to pay for their food whenever they went out to eat. Another friend of hers, meanwhile, looked at Sandra as nothing more than a human piggy bank that would help them get out of financial troubles. Thankfully, she caught on quickly and drew the line.
Other people aren’t as lucky as Sandra though—especially when family is involved. Not only is it much harder to refuse family, just imagine being bombarded by relatives you haven’t seen in years (or at all) suddenly coming out of the woodwork! Worse, if asking or demanding money from you won’t work, there’s a good chance some of them will resort to guilt trips and manipulation.
Another reason lottery winners quickly sap their financial reserves dry is by investing blindly. All too often, as soon as people see that you’ve won the lottery, an outpour of business proposals soon follow. These could come from anyone—family, friends, colleagues, or even strangers.
On their own, investment proposals are quite harmless. They’re nothing more than ideas, after all. Plus, it’s actually wise to invest—but you have to do your due diligence to succeed. The problem is that many lottery winners take them on without much scrutiny.
Is the business being pitched to you actually viable? How does it work? When is the ROI? If even the basics cannot be explained to you in the simplest of terms, it’s probably an investment not worth diving into.
For a lot of people, winning the lottery enables them to pursue their vices to an even greater degree. How many times have you read stories about jackpot winners spending their money on parties, booze and drugs? Michael Carroll, the self-proclaimed King of Chavs, is one of the most famous—or infamous—examples of this.
Soon after winning the £9,736,131 National Lottery jackpot in 2002, Carroll began living a very lavish life filled with debauchery. Not only did he spent a good chunk of his winnings on cars and houses, he also indulged frequently in parties, drugs, and a cavalcade of women. He even organized private demolition derbies right on his property using the cars he bought! Needless to say, he blew all his winnings.
He’s not the first one to spend millions on vices though, and he certainly won’t be the last. People tend to consume more of what we crave—vices included—the more that is available to us. So, if someone was addicted to something before they had money, just imagine how everything could spiral out of control when they have millions to spend.
How Do You Avoid Going Bankrupt?
There isn’t really a one-size-fits-all solution here because everyone’s situation is different. One person, for example, might have very supportive families but aren’t pretty good when it comes to investments. Experts agree, however, that hiring financial advisers or an attorney after winning big can usually save you a lot of headaches. It helps having a third party around to keep you—and your spending habits—in check.
There’s a reason that millionaires who got rich through hard work are less likely to go bankrupt compared to those that become rich overnight—they know exactly how to handle it and they surround themselves with the right people. It’s not a bad thing to spend your money on nice things, but just like most things in life, do it responsibly and in moderation. Finally, remember that it’s your money; you are in control of it and not the other way around.