The Mega-Millions Jackpot for tonight is approaching one billion dollars. This reminded me of the fact that so many winners of the lottery go broke in a matter of years, and according to the National Endowment for Financial Education as many as 70% of lotto winners end up blowing all of their winnings. Another agency, the Certified Financial Planner Board of Standards, supports this conclusion, though their data shows about 1/3 file bankruptcy and just over 50% go broke in a matter of years.
As we have covered extensively, most Americans are terrible with money. If someone wants hundreds of millions (after tax) would they too go broke! I wonder as Americans are so bad with finances…so it would not surprise me if they did. The problems can even start going all the way back to their child hood, and the fact that schools do not teach students or parents do not instill respect of money in their kids. Then if the children’s parents did not instill into them the proper way to think about money, kids start off with bad habits and it never changes. But of course, that “repeating or retreat” concept applies to many things in life; money, violence, racism, abuse, anger, etc.
Why do 70% of winners lose their money?
There are extensive opinions on why as many as 70% of lottery winners go bankrupt. Of course, there is generally not one main reason, but usually a bunch of terrible decisions often lead to the person losing their winnings. We will give our opinions below, but much of this is a rehash of what we have reported on in the past.
In general, the consensus is that lotto winners are “ordinary people” one day, and then over night they may have won hundreds of thousands of dollars or many millions in the lottery. So, they go from being ordinary to having more money than they thought they would ever have in their life.
They did not earn their money on their own, but it was in effect given to them for free. So they did not work for it, start a business, or really earn it like most Americans do. Since they do not earn it, they do not value or appreciate it. I for one could never imagine blowing through everything I have earned over the years to get to the point where I am now…a lotto winner often does not feel the same way.
The thought is these people now think they are invincible and powerful, and they let the money (whether it is tens of thousands of dollars or tens/hundreds of millions) get to their head. They get an ego, think they are extraordinary, and can do no wrong. Foolish over course.
So they start to blow through the money…buy multiple expensive cars (which are depreciating asserts), take 5 star vacations, buy a fancier and bigger house then they need (and do not account for the annual recurring taxes, insurance, and maintenance on the home), purchase furniture and possessions for the home, and blow through their money in other ways as well. The bottom line is they do extremely foolish things, borderline stupid.
Another big reason cited by the National Endowment for Financial Education for the 70% of people going bankrupt is friends and family. They emerge from the woodwork. People that a lotto winner has not talked to in years suddenly start kissing up to the lottery winner. They put on false fronts, fake friendship, tell the winner they have a great business to be invested in, and siphon off money in all sorts of ways.
And since the lotto winner often loves the attention, and they grew into an inflated ego, they pass out money to these friends/family for their attention. Or they invest in investments they do not understand. Then what inevitably happens when the winner goes broke, those so-called friends disappear overnight.
Another reason cited is due to the winner will sometimes start to get caught up in gambling, substance abuse, and other self-destructive behaviors. It is estimated that about 10% of winners go down this path. A big reason cited is that the self-destructiveness helps the winner alleviate pressure from winning, but some people also think if they won the lotto by “gambling”, then maybe they can win again. Jack Whittaker, who won $135 million, is put one example of this.
But in general, it is winners acting like fools, living above their means and dare shall I say being idiots. They live above their means with their “fake friends” and family, splurge on themselves, do not invest for recurring dividend income, and do countless other foolish things. they do not seek professional help and do not acknowledge their personal failing. Ego, foolishness, and even lack of education are all big drivers of the poor financial decisions. Or at least the winners use those things as excuses. In some ways it is very sad for those 70% of lotto winners, which is a once in a lifetime event, blow through their winnings and go broke in a matter of years.