Lottery Winners Today
Winning the lottery can change your life, but how?
Everyone likes to daydream about how wonderful it would be to win the lottery, but few consider the possibility that winning the lottery is not all it’s cracked up to be. Two academic research projects have looked at some of the less commonly considered possibilities related to winning the lottery.
Winning the Lottery and Happiness
It seems to go without saying that winning the lottery should lead to financial independence. If you are financially independent, then you should live a life of leisure, without the stress that goes along with struggling to pay bills. Increased leisure and less stress seem like a recipe for a happier life, but is this really the case?
In a classic study by Brickman, Coates, and Janoff-Bulman (1987) the effects of winning the lottery on happiness were reviewed. These researchers compared the levels of happiness from 22 major lottery winners to ordinary people. The findings from the study showed that compared to ordinary people, lottery winners are not any happier. In addition, when asked about how happy they were before they won the lottery and how happy they expect to be in the future, they were no different than ordinary people.
This research strongly suggests that happiness is relative and that even winning millions of dollars in the lottery will not make us any happier in the long run. One finding that was particularly interesting was lottery winners rated everyday experiences to be less pleasurable than ordinary people. The researchers suggested that because lottery winners considered winning the lottery to be such an overwhelmingly happy moment, everyday experiences paled in comparison. This research seems to suggest that instead of making you happier, winning the lottery makes it harder to enjoy the simple pleasures in life.
Winning the Lottery and Bankruptcy
Another common assumption about winning the lottery is that all your financial troubles will quickly melt away; however, this may not always be the case. Of course, you can imagine that if you were to win $100 million dollars, you would not have any financial problems. Even in cases where people won massive jackpots, some eventually run into financial problems. Tom Grey with the National Coalition Against Legalized Gambling, noted that Virginia state lottery officials found in 1999 that out of 300 millionaire winners, at least 60 eventually faced financial problems.
Research by Hankins, Hoekstra, and Skiba (2009) specifically looked at the relationship between winning the lottery and bankruptcy. Their research project collected data from about 35,000 lottery winners of the Florida Lottery’s Fantasy 5 game between 1993 and 2002. They then compared these lottery winners with bankruptcy records. The findings of the study turned out to be rather surprising. In order to analyze the information, lottery winners were broken into two groups: people who won less than $10,000 and people who won between $50,000 and $150,000. On average, there was no difference between the groups in their amount of assets and unsecured debt. The researchers found that the people who won larger amounts of money were 50% less likely to file for bankruptcy in the 2 years following their win. However, these same people were more likely to file for bankruptcy between 3 to 5 years after winning.
This research basically means that winning a lot of money in the lottery kept people from going broke immediately after they won, but over the long run, they were just as likely to file for bankruptcy as those who won small amounts. The researchers concluded that the evidence suggests that even when people win large amounts of money that could easily be invested or used to pay off their debt, they were more likely to spend the money lavishly and end up broke. The takeaway from this study is that winning the lottery does not prevent money problems, it just postpones them.
Lesson Learned
After reviewing some of the statistics and research about how winning the lottery can create problems for winners, it seems like the best decision would be to choose the annuity option when winning the lottery. By choosing the annuity instead of the lump sum amount, people have the security of knowing that no matter what kind of wasteful spending they engage in, they will be receiving a steady stream of payments for years to come.
Another important point that people overlook is that even if you choose to take the annuity option from the lottery, it is always possible to sell a portion of your annuity to receive a lump sum payment that can be used to pay for large expenses or investments for the future. If you find yourself in this situation, don’t hesitate to contact one of our representatives and we can provide you with information about selling a portion of your lottery winnings for a lump sum payment.