1 in 3 Lottery Winners Broke Within 5 Years

The sad news is that 1 in 3 lottery winners are in serious financial trouble or even bankrupt within 5 years. Why? The suddenly wealthy often never learn to manage their money.

Financial windfall coupled with reckless buying and no concept of money almost always leads to trouble. This is especially true for people who decide to use their winnings to create a new business, said Birke, a psychologist on retainer with Lexington Wealth Management.

“If a person is not business savvy, they don’t know what it takes to run a business — $300,000 could disappear very quickly,” Birke said.

“You have to really understand the true cost of things. If you make a purchase (on your credit card) that costs $50 and it takes you two years to pay it off, you spent a lot more than $50. Sometimes people just don’t compute the numbers.”

The best thing to do is to hire someone with expertise handling money, said Robert Glovsky, director of Boston University’s Program for Financial Planners and president at Mintz Levin Financial Advisors.

“On the positive side, the lottery allows winners to do things they could never do before, whether it’s consumption or charity,” Glovsky said. “But what happens when the money runs out? Do they return to their old lifestyle? I would think that would be very difficult.”

The moral of the story? If you’re bad with money you’re going to be broke. Even if you win the lottery.


Cash windfall can lead to downfall
[Eagle Tibune via Fark]
(Photo:Lisa Pisa)

Comments

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  1. huginn says:

    Alot of people who are buying lottery tickets really don’t know how to handle their money if they are buying lottery tickets in the first place.

    Is it any surprise at all when they come into money, they have no fricken clue on what to do with it?

  2. iamlost26 says:

    I actually read a yahoo article about this about a year ago. It turns out that a lot of the problems stem from family and friends. Once you’re a winner, suddenly everyone needs help, and you can’t help but feel like it’s your duty to try.

    One of the examples was one winner’s brother talked him into opening a car dealership with him, and it completely tanked. I think a main point of the article was “either you keep your money, or you keep your friends”.

    Anyway, though it’s idiocy to actually plan to win a jackpot, people do need a plan in case they suddenly come into contact with a large sum of money. Hire a lawyer/financial planner, because odds are you won’t know what to do.

  3. hypnotik_jello says:

    Just goes to show you can’t fix stupid with money.

  4. homerjay says:

    Hey, will ya look at that. An articled from my local paper. Looks like the Trib’s finally made something of itself. I mean besides the Pulitzer.

  5. liquisoft says:

    Perhaps the best thing to do is not to quit your day job. So you win $20million. You won’t be seeing much beyond the monthly salary you’re given by the Lottery. If I were to win, I think I’d keep working and save all of the money until the total accumulated amount is enough to retire on. Oh, and I’d never invest in a friend’s business; I’d give em $2,000 and tell em to go f themselves. TA DA!

  6. Nemesis_Enforcer says:

    Yeah it may be hard to manage a buttload of money and keep it for over 5 years…but I wouldn’t mind to give it a shot. I only have 1 sister and thats it no parents, cousins, nieces nada I think even if I help her out I will still have a bunch-o-cash left.

  7. MercuryPDX says:

    @iamlost26: There have been more than a few TV shows that call winning the lottery a curse.

    Jack Whittaker is a prime example.

  8. darkclawsofchaos says:

    i just spend that windfall on what i need like college, everything else i still work for no matter how much i won, but at least med school will be tiny bit less stressful

  9. jcabraham says:

    People are overlooking the coke and whores aspect of newfound wealth.

  10. TimSPC says:

    This is why if anyone gave me $5 mil, I wouldn’t tell a soul.

  11. hypnotik_jello says:

    @liquisoft: Yeah, except you get a lump sum which can invest right away. Let’s say after taxes you only get $5 million. Investing that will get your much more than you could ever hope to make on a salaried job. Unless you absolutely love your job, for example you do rewarding social work, there is no reason to continue working it if you win the lottery – as the article says, you just need to know how to manage your money, and if you don’t, you pay someone to do it for you. I’m not saying that you should live an extravagant lifestyle, but there isn’t a reason to maintain the job for financial reasons.

  12. ionerox says:

    i’m in the Corporate Trust biz, and have worked with companies like Stone Street. Rats, every single one of them. Lottery Receivables are pretty bad, but it’s hard to feel to badly for the stupid folks to buy into that crap.

  13. urban_ninjya says:

    Since it’s mainly broke people buying lotto tickets.. it’s not like their lives were any worse to begin with.

  14. jdmba says:

    Look at what winning the lottery did to Hurley! Nothing but bad bad bad bad things.

    I also agree that it is probably best to keep it a secret.

    However, I don’t agree with the first post. I am QUITE adept at handling money, including owning my car outright and carrying no consumer debt (only debt is a fixed 5% 30 year mortgage with $0 outstanding on my home equity). That said, the lottery gives me a glimmer of hope. Yes, I know its a ‘tax on the stupid’ and that ‘the odds of winning the publisher’s clearinghouse are slightly worse than 100% of the air in your living room suddenly disappearing’, but that is neither here nor there. It is a chance, and I like knowing I have an entry, cause you just never know.

  15. Crazytree says:

    The lottery is a tax on stupidity.

    The people that win are at a disadvantage to begin with. The rich and successful aren’t usually the people you see at 7-11 at 3am buying a bunch of lottery tickets and slim jims.

  16. humphrmi says:

    @MercuryPDX: I read that Jack Whittaker story too, and it’s a pretty sad story. The kicker is that this guy was independently wealthy before he won the lottery, and he and his family were happy (or at least more happy than after they won). It wasn’t until the money became “F-U Money” that things went south for his family. It was after I read his story that I started rethinking my plans of winning the lottery and retiring.

  17. SOhp101 says:

    @jdmba: I think Huginn is referring to those people who play the lottery almost like it’s a form of entertainment or gambling.

    Overall your chances of benefiting from all the compounding interest on the money you spend on lottery tickets would far outweigh the minute possibility of winning a lot more. It’s expensive price to pay for hope.

  18. Jigen says:

    It always pissed me off when people would come into the convenience store I worked at, buy $50 worth of lotto, and then proceed to buy shit with foodstamps.
    I’m paying taxes to provide these so-called needy people with foodstamps, when if they just put down the f’in lotto, they wouldn’t need said foodstamps.

  19. wring says:

    are we playing the “if I had $1 million” game?

  20. hypnotik_jello says:

    @wring: there’d be no janitors, because no one would clean shit up if they had a million dollars.

  21. ErinYay says:

    E! Television had an awesome True Hollywood expose on lottery-winners-gone-bad. They’re mostly white-trash gone-rich-gone bad, much to no one’s surprise.

    I’ll admit that we buy 1 ticket when the Powerball, or whatever, is really big, and play the “how many miniature horses could I buy for 3 badrillion dollars,” (answer: 1,000) but I will tell you that my biggest enemies on any given day are those who, at 7-8am, are holding up paper-coffee-packa smokes people like me by needing “1 $5 Lucky Scraps, 3 $15 Snowman Bucks, no, no, no, wait, make that 2 $15 Snowman Bucks and 3 $5 Bingo Bashers…” and on and on and on and I HAVEN’T HAD MY COFFEE YET.

    And then they have to hand over all 35 slips to check and see if any are winners. JUST GIVE ME YOUR MONEY AND I WILL TELL YOU YOU’RE A LOSER, AND WE CAN BOTH BE ON OUR WAY.

    *Ahem*

  22. TechnoDestructo says:

    Rotten.com’s instructions for how to cash in a winning lottery ticket:

    [rotten.com]

    They make a damn lot of sense.

  23. csdiego says:

    A few years back Slate published an article about how the lottery is actually a sensible investment when the jackpot gets really, really huge:

    [www.slate.com]

    Basically, if the jackpot gets big enough, the expected value of the ticket (jackpot x odds of winning) is greater than the cost of it.

    But that doesn’t account for all the problems lottery winners can expect to face, even if they have a realistic idea of how much they’ve really got after taxes and they’re not tempted to spend it all on hookers and blow: friends and relatives needing help, the temptation to break up a longtime marriage or relationship, bogus creditors coming out of the woodwork.

    I bought into a lottery pool at work a while ago, but when I actually thought about what I’d do with the money I got so worried that I couldn’t even enjoy the propect of winning. It’ almost a good thing I didn’t win.

  24. VA_White says:

    Jack Whittaker was nice and tried to give a lot of his money away. I am a bitch and I would tell any relative past our parents and siblings to go pound sand. Seriously.

    If we won a huge sum like $350 million, we would give all the relatives who have ever sent us a Christmas card a one-time gift of 10k. After that, they are on their own. Thank heavens I don’t like my extended family enough to feel guilty about stiffing them.

  25. cosby says:

    Yea rottens list is a good one. Personaly if I won a good amount of money I would call one of the lawyers I do work with and have the paperwork started. I’d have an accountant meet us at his office.

  26. liquisoft says:

    @hypnotik_jello: But I do enjoy what I do, hence there is no reason for me to stop working just because I’m stinking rich.

  27. endless says:

    yeah, if i am at a gas station and the lotto is over 200 million, i dont mind throwing down a dollar for a ticket.

    3-4 dollars over the course of a year is really nothing when compared to the exceedingly slim chance of huge gains. under 200 million i don’t think its worth it after taxes and such…

  28. MrEvil says:

    @TechnoDestructo: Rotten has some good suggestions. But I’d take their safe deposit box a bit further and say you get a box at a private vault. I already have one where I store all kinds of important documents like birth certificates and vehicle titles (important for old-ass cars that aren’t in the computer)…as well as a little stash of cash in case of emergency. The nice part is the private vault isn’t regulated like banks are, and they don’t ask ANY questions. You have the key, you sign the paper and you get to your box.

    My extended family would most certainly hate me if I were to win the lotto, but to hell with them. I’m the black sheep anyway. I’d take care of my folks and my sister and that’s it.

  29. quiksilver says:

    @Jigen: I’m so with you on that.

  30. aikoto says:

    The problem here is that people who are dumb enough to buy lottery tickets are, by default, not smart enough to know what to do with the money.

    “Oh Lordy! If I can win me some money, Imma gonna buy me some new shooz!”

  31. bdgbill says:

    If these people knew anything about money they would not be buying lottery tickets in the first place.

    The lottery is a tax on stupidity.

    I would like to see a law that makes it illegal for people who are on welfare or food stamps to buy lottery tickets.

  32. joeblevins says:

    I have seen dirtbags at the lower end of the social pool signing over welfare checks at the Casino. I say, if you ever do that, then we cut your poor ass off.

  33. sroemerm says:

    This is precisely why Starfleet created the Prime Directive, to keep advanced technology away from civilizations that went ready for it. Even with the best intentions that technology might well destroy them.

    To bad there isn’t a Financial Prime Directive, that would prohibit our government(s) from being involved in the lottery in the first place. Even with the best intentions this money destroys peoples lives.

  34. SadSam says:

    My advice for lottery:
    (1) Don’t play, its a voluntary tax for people who are bad at math.
    If you ignore (1) and play and win, see below.
    (1) Do not tell anyone you won the lottery (except spouse – probably required to tell them but make sure they don’t tell anyone), note the deadline for claiming the prize and put the ticket in a safety deposit box. Do not sign ticket.
    (2) Hire a trust/estate attorney to help you determine the best way to claim your prize. There may be tax advantages to claiming the prize as a trust.
    (3) When you claim your prize, decline all publicity (no photos, no press conf., etc.) Bring attorney with you to back you up, have attorney figure out how much publicity you can decline.
    (4) Hire good financial planner/accountant.
    (5) Claim prize, put aside huge amount of money for taxes.
    (6) Park money some place safe and don’t make any big financial decisions for 6 mos. to a year. Don’t quit your job, don’t buy a Porsche, don’t buy a new house, don’t invest in start ups.
    (7) Figure out whether you can live off lottery investments in your current lifestyle, figure out if you can up your lifestyle and live off investments.
    (8) Once you have investments/lifestyle questions answered slowly start making those investments. Continue not telling anyone you won the lottery.

  35. bonzombiekitty says:

    My plan if I should ever win the lottery, not that I ever play it. But still. In order of importance:

    1. Take whatever measures I can to keep my winnings as private as possible. I don’t need every person in the world knowing I suddenly have millions of dollars.

    2. Take the lump sum. I can put it into safe investments and probably make more money over time than if I waited for the payments.

    3. Pay off all my own loans and debts

    4. Pay off all my parent’s loans and debts.

    5. Buy myself a house

    6. Buy brother & sister a house or pay off their loans and debts (their choosing) – roughly the same amount of $$ for each.

    7. Pay off all my grandmother’s loans and debts.

    8. A certain amount of money for each of my aunts and uncles on my dad’s side of the family to be used for loans & debts, or purchasing a house.

    9. A certain (smaller) amount of cash to my cousins on my dad’s side of the family to be used for loans, debts, house or education.

    10. Buy a vacation house on the beach somewhere for the whole family to use.

    11. Live off the remaining interest. Do volunteer work full time.

    The above would be adjusted depending on the amount of money won.

  36. bbbici says:

    You may say the lottery is a tax on the stupid, but i’ve personally known 5 people who have won over 5 million, in my short lifetime (34 years). Yeah, the odds are impossible, but it’s really cheap fantasizing/entertainment, and somebody’s got to win.

    There was this awesome dude up here who managed to hide the fact he won until the very last day before the deadline. Just lived a normal life for a year– can you imagine?! He wanted to get his divorce finalized before cashing in– SMART!

  37. zibby says:

    The lottery is a tax on stupidity. I’m frankly surprised that 2 out of 3 winners don’t go bankrupt.

  38. theblackdog says:

    Anyone remember the lottery winner who had about $100,000 stolen out of his SUV because he left it inside a briefcase while he was too busy throwing $100’s at strippers?

  39. lincolnparadox says:

    @TimSPC: All big lottery winners are announced in the paper and typically in advertising.

    @VA_White: I agree 100% with your one-time tax-free $10K gift. It’s what I’d do too. With one exception, I’d pay off my folks’ mortgage. Beyond that, invest, set up trust funds and find something to do with my new time.

  40. zibby says:

    @bbbici: Dude, with luck like that hanging around you, you have my blessing to go play.

    And yeah, I know that I (like others here) called the lottery a tax on stupidity, but if the pot gets big enough I’ll spend a couple of bucks I’ll never miss on a shot. It’s people spending 30 or 40 bucks (that they will miss) at a crack that kind of makes me wish they’d do away with the thing.

  41. Geekybiker says:

    @bbbici: Even if he got divorced before cashing the ticket, I bet she is still entitled to the money. The prize was won during the marriage and claiming the unpaid ticket has no value is absurd.

  42. kwsdurango says:

    3-4 times a year, when the pot is high enough, I’ll spend $1.00 for a lottery ticket. The 30 or so minutes of daydreaming about the money are worth the price of admission – in fact cheaper than a 90 minute $8.00 movie.

    If I ever won, I’d take the cash payout, invest the money, try to live off the interest/earnings only and maintain the principle. (It’s a nice daydream.)

    Note: the “small print” on most of the larger lotteries says that if you die the payments stop. The winnings (and payments) are non-transferable. If you win, take the cash payout!

  43. Smackdown says:

    If, by dumbly playing in the first place, you are lucky enough to win, and you are concerned about friends/family hitting you up, then you should hire a reputable lawyer and look into starting a trust, and tell all your friends/family that you’re sorry, but you do not make the business decisions, and they’ll have to speak with your lawyer. Who you have instructed to refuse all propositions.

  44. WraithSama says:

    @kwsdurango:

    I’m not sure if you’re referring to a state lottery or something, but I believe the national Powerball lottery continues to pay to your estate in the event you die before the installments are all paid out.

  45. greeny1032002 says:

    I did hit the lottery and since then have learned a lot about it.
    1.All lottery with the exception of “win for life” or “set for life” type of lottery which does have a preset amount pays to the estate,trust or will upon death.
    2.If you get divorced after the ticket purchase date it is considered part of the state as far as the court is concerned.
    3.The odds are against you and i wouldn`t buy a ticket before i purchased my food, but there is nothing wrong with a dream for a few bucks every once in a while.
    4.If lottery is tax on stupidity then what is buying smokes or a drink?
    5.When you win, in order to collect the winnings you have to concent to them using your name publically.
    6.Don`t hide cash in a box, use credit cards or bank checks. When you are audited you will need it or pay darely for what you can`t prove.
    7.It has to be 200 million before i play? I wonder what that guy makes in a year?
    8.I played the lotto and won…i`m neither stupid, nor am i buying my food with food stamps. I made a better than averag living before i hit the lotto and now i do even better.
    9.Don`t think for a second people wont find out. I won on thursday and my answering machine was full by friday evening.