If I only won the lotto, things would be different. We all say it to ourselves, its our secret hope and dream that winning the lotto would solve all of our problems. Credit card debt, gone. Mortgage, paid. Student Loan Payments, do you want that in cash or check? Yes, all of our money woes would be gone with even a modest lotto win. Sure we hear about those lotto winners filing for bankruptcy years later, but we tell ourselves we would be different. We would be smart about it, and not buy 3 Ferraris or a new house on the beach, we would invest and diversify, with an eye to grow that lotto winning into millions more.
It can be so easy to arm chair quarterback and plan out a future wealth on a dream lotto win. It is an entirely different story when it actually happens, when it is a reality and the money is there in the bank account. It is more than you could imagine, and it will solve all of your problems, but then the rationalization and escalation occurs. You tell yourself, "I have all this money now, I can splurge a little, just this once. I deserve it, after all I've been through." With a purchase here and indulgence there, you soon have a 20 gallon margarita maker with a salsa dispenser by your pool and are bidding on the elephant mans skeleton on ebay.
My conversation on the lotto and its winners comes from an article I found by three professors, Scott Hankins from the University of Kentucky, Paige Marta Skiba from Vanderbilt University, and Mark Hoekstra from the University of Pittsburgh, entitled "The Ticket to Easy Street? The Financial Consequences of Winning the Lottery."
In this article it looked at Florida Lotto winners and how frequently they would file for bankruptcy in the years after their win. The article compares how people who suddenly become rich soon become bankrupt with whether the governments bailouts are merely postponing financial ruin. The paper is an interesting read and comes to the two part conclusion that bailouts don't work and that people who get a large amount of money are broke within 5 years.
The overarching conclusion of the paper is that money without restraints leads to disaster. What we non-lotto winners can take from this sort of research is that proper management of unexpected money, whether its an unexpected bonus or a $100,000 gift from your dying aunt Rosie, is key in avoiding a future bankruptcy despite being given unexpected money. Sometimes we have to say "no" today so that we can say "yes" tomorrow.