A new study by researchers as University of Kentucky, the University of Pittsburgh and the Vanderbilt University Law School shows that people who win $150,000 from a lottery are just as likely as those who win $10,000 to declare bankruptcy within five years. I’ve often seen statistics that show that lottery winners often blow their winnings, declare bankruptcy, and find that an influx of cash for which they weren’t prepared changes their life for the worse, but this study goes farther by comparing these two groups of winners.

From the Yahoo Finance article describing the study, which will be published in a research journal:

They found… 5.5 percent [of lottery winners] declared bankruptcy within five years of taking home the jackpot. While the bigger winners were 50 percent less likely than small winners to file for bankruptcy within 24 months, they were more likely to file for bankruptcy three to five years after winning. The net result is that within five years, large winners were just as likely to file for bankruptcy as small winners.

The article points out that found money is often treated differently than earned money. When money arrives into someone’s possession through luck, like finding cash on the street, winning the lottery, and in some cases, getting a bonus payment, there’s a tendency to spend the money on something unnecessary.

While people don’t generally think of winning the lottery as having a negative effect, many winners would have been better off without the extra cash. While lottery commercials express the idea that a jackpot would be the solution to life’s problems, and the chance winning is more likely as it really is, it’s false hope. For the most part those who play the lottery end up spending more money on tickets than they’ll ever win. For individuals in difficult financial situations, it may seem like the only way out.

My coworkers and I used to buy lottery tickets when the jackpots were over $100 million. The stories of groups of coworkers splitting the winnings twenty ways and taking early retirement are inspiring, but the news cameras rarely follow their lives five years down the road. I participated because it was a small price to pay to participate in what’s more a social event, not because it was a chance to win money. But I do feel sorry for those who play the lottery with the belief that it’s the only plausible answer to the problem of needing money to move from one socio-economic status to another.

If you do win the lottery, try to manage the money responsibly. That will be almost impossible without prior knowledge of how to manage money, and many who play the lottery do not have this knowledge. Once you win, people will show up everywhere with suggestions. There is no privacy for lottery winners, so watch out for long-lost relatives and shady financial advisers.

Updated December 22, 2011 and originally published September 3, 2010. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by Luke Landes.

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