Most of us dream of being millionaires or, these days, billionaires. Unlimited wealth = unlimited fun! However, the reality is that this is not the case. Seven our of ten lottery winners end up broke and a third go on to declare bankruptcy, according to the National Endowment for Financial Education. Runaway spending, toxic investments and poor accounting can burn through a lucrative windfall in next to no time.
Why would this be?
I guess it’s because many of us built to implode. We win millions and decide to spend it straight away on holidays and fun, as well as giving lots to family and friends, and then we find there’s nothing left.
After winning the biggest undivided jackpot lottery in U.S. history, Mavis L. Wanczyk of Chicopee, Massachusetts, ignored much of the advice that financial experts typically give to lottery winners. She quit her job, spoke with the press and took her winnings as a lump sum. While she may be able to afford to break the rules, most winners can’t.
Lottery winners are more likely to declare bankruptcy within three to five years than the average American.
You would think that if you won $1 million or more, you would be set up for life. You pay off your mortgage and think about a life of ease, but it doesn’t go that way. In fact, if you win the lottery, most are more likely to end up in a life of woe.
12 reasons, according to Ranker:
- They Feel Pressured To Share With Friends And Family
- Tax Obligations Can Get Very Complicated
- The Payout Is Much Less Than They Might Have Thought
- Mental Accounting Changes How They Think Of Money
- The Euphoric Feeling Of Winning Clouds Their Judgement
- They Spend Uncontrollably On Things They Don’t Need
- Bigger Homes And Fancier Vehicles Mean More Bills
- They Make Bad Investments Trying To Earn More Money
- Hardly Any Of Them Get Professional Help From Financial Advisors
- They Might Not Be The Best At Saving
- Social Media Makes It Difficult To Hide The Fact They've Won
- They May Slip Into Depression And Spend More On Drugs And Alcohol
The two stand-outs on this list for me are (4) and (12).
“Mental accounting” is the way we think about money, which is not the way money works. An example is that you go to see a movie and, when you get to the cinema, found your lost your ticket. Do you buy another ticket? If you do, it’s now cost you twice as much to see the movie! It actually hasn’t – the ticket price was still the same ticket price – but, in your head, you think the movie is now costing you twice the price.
Another example. You invest $1 million in Apple and Amazon stocks. The stock price tanks in recession, and you lost $500,000. In your head, you’ve lost half a million. In reality, the $1 million you had is still worth a million.
It’s all in your head and the nature of money.
Number (12) intrigues me, as I’ve many times that universal basic income doesn’t work. You give Native Americans or Norwegians a basic guarantee of income, and they turn to drink and drugs. Obviously that is a generalisation, but I’ve heard many examples of people who lost the work ethic, because they are guaranteed income and wealth, and they give up. They just do what makes them happy which, for many, is drink and/or drugs.
Matthew Perry, Chandler Bing in Friends, is a case in point. Like the rest of the cast, Perry made $22,500 for the first episode of the show and $1 million for his work in the final episode, and in 2021, Matthew Perry's net worth stands at $120 million. Meanwhile, Mr. Perry has been to rehab 15 times and undergone 14 surgeries related to his addiction. Regarding Friends? “I don’t remember three years of it,” he said in 2016 on BBC Radio 2’s “The Chris Evans Breakfast Show.” Many other celebrities are examples of such behaviours.
So, carry on dreaming of wealth and winning the lottery but, if you do, take advice and stay grounded. Oh, and final note, money does not equal happiness.
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...