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.