Jackpot Winners Just as Likely to Go Bust

[izquierdista]

Put this in the "researcher feeds his data to the bull, reports bullshit at the end" category:

That's according to a new study by researchers at the University of Kentucky, the University of Pittsburgh and the Vanderbilt University Law School. The paper appears in a forthcoming issue of the Review of Economics and Statistics.

"I've always been interested in whether you could solve people's problems to some extent by giving them additional cash," says Mark Hoekstra, assistant economics professor at Pittsburgh, who co-authored the paper with Kentucky's Scott Hankins and Vanderbilt's Paige Marta Skiba. "And anecdotally you always hear these things about lottery winners -- someone wins a bunch of money and the story doesn't end very well. But we weren't aware of any real empirical evidence on whether this was true."

more at:http://finance.yahoo.com/retirement/article/110553/jackpot-winners-just-as-likely-to-go-bust

One particularly egregious conclusion: "Winning the lottery undid any negative shock (that previously occurred) for the large winners, and they still ended up filing for bankruptcy," Hoekstra says. "That is inconsistent with the idea that the only people who file for bankruptcy are those with negative shocks such as divorce, job loss or health issues."

Poor Prof. Hoekstra just can't understand how people could be induced to spend the money they won! I sentence him to sit in a bus full of preteen girls going to the mall, just after being told that the good professor will pick up the tab for all their shopping. But I suppose it's to be expected, since as a professor of economics, all he studies is money, not the psychology of the people holding the money. I hope the next time he opens his mouth to blurt out the "rational man" hypothesis, someone crams this paper in his piehole.

[DeSwiss]

1. K&R - And well said!!! n/t

[CTyankee]

2. Could it be that people are "addicted" to the lottery because they cannot handle their

finances in the first place?

Personally, I think buying lottery tickets is just another way of flushing $$ down the toilet. I think I once bought a powerball ticket, when the payoff was astronomical. I just don't "bet."

[Kolesar]

14. People think "a number" is more likely to come up if they play it often

:banghead:

[awoke_in_2003]

25. we have drawings on Wed and Sat...

I spend $2 on the lottery every week. Cannot win if you don't play, but I will not play much.

[MilesColtrane]

36. The Lottery is a tax on people who are bad at math.

[Xenotime]

44. Somebody has to win...might as well try, right?

[SoCalDem]

3. "found" money vs earned money

I knew a kid in high school whose parents used to give him money for dates. He was a very "generous" dater..dinner at nice places, movies, etc.

BUT at about 17 it all changed...his Dad made him take a job at the family auto dealership, and his allowance ended.

Suddenly his dates had to be satisfied with playing pool in the family's palatial basement, or swimming in the family pool & dinner-out was a rarity.

It seems that once Mike had to pay out of his own 95cents an hour wage, he was less generous:)

[Dawson Leery]

4. Have any large lottery winners ever

invested their money wisely, perhaps in a business?

[SoCalDem]

6. I'm sure some have, but many fall prey to shifty "advisors"

who probably give them pretty bad advice, or maybe they ignore advice given by reputable ones.

If a forever-poor person wins, the temptation to be the "Good-Time-Charlie" of the family, probably does a lot of them in.. Even a LOT of money can go pretty quickly when everyone you know has their hand out..:(

[awoke_in_2003]

27. I would buy myself...

a Macbook Pro, and my wife a new car (hers is 10 years old). The rest would be invested properly, and I would continue working (health insurance isn't cheap)

[SoCalDem]

30. I would build a "green" house, pay cash for it

and then live off the interest of the money:)

[awoke_in_2003]

39. good plan...

my house is paid for in two years, so I could sell it and do the same in the country.

[TheMightyFavog]

8. An early 90s Powerball Winner in Wisconsin founded a summer camp.

http://www.jsonline.com/news/wisconsin/54185307.html

[Mariana]

11. Sure they do.

But a huge number of them end up with nothing, either because much of it gets stolen and scammed from them or because they're just foolish with money. We all know people who tend to fall for scams, and we all know people who consistently spend more than they have, even if they have a lot.

My husband's sister and her husband won a few million back in about 1993. By 2003 it was all gone and they were broke and divorced. I know they lost some of it to one of those MLM scams - I think it was Market America. We all tried to warn them. Their house was chock-a-block full of all this overpriced crap that they were supposed to sell but of course no one wanted it. I think the rest ended up at the nearby casino. They sure as hell didn't share any of it out with the rest of the family.

[RaleighNCDUer]

17. I would bet it is the other way around - the vast majority use the money

in sound investments and buying property. That's not news. The 'news' is when someone hits a million and blows it, because that's the way the Calvinists who run our society like the narrative.

Incidently, most wins are not in the 'millions'. Somebody hits 250k is not going to quit work and go on a world cruise - they'll pay off their debts, make sure their mortgage is paid off, and put the rest back for retirement.

The PTB have told us that a million is a limitless sum - you're a MILLIONAIRE! - so I think the really BIG winners might tend to be less cautious than the majority of winners, but most big wins are between 100-250K.

[alphafemale]

5. The lottery is a tax on people whpo suck at understanding statistics nt

[jmowreader]

20. This is true, but...

compared to some of the new "investments" they invented during the Shrub Maladministration, it's probably less of a gamble.

[alphafemale]

26. And I supk at typing...obviously nt

[provis99]

7. most lottery winners split the money with relatives, and friends.

this right-wing asshole Hoekstra (relative of the filthy Pete Hoekstra?) just assumes lottery winners are stupid and frivolous, when other studies I've seen indicate that lottery winners wind up with little money because they generously share it with less well off relatives and friends.

[shanti]

9. and some are murdered

there was a post yesterday about a casino winner on his way home who was cut off while driving and shot. also, the lotto winner in florida who was conned out his money and subsequently murdered. :(

[madmom]

10. I have a friend who won $1 million in a medical settlement. While not the lottery

still a nice chunk of change for someone who was born poor. She is 54 and will never have to work again. She did invest wisely, she also bought a nice SMALL house and car. She is a very smart woman, IMO.

[krispos42]

12. I would think a fair amount would go into bad businesses

Mr. X decides to open the ___________ he always wanted to, but he'll run it HIS WAY, the way he feels his prior bosses should have run things.

The business does poorly, so the business eventually files for bankruptcy.


I wonder if maybe what's happening is a corporation that is started by the person goes belly-up and files for bankruptcy, and that's being held against the lottery winner. It might well be that the winner is still solvent and comfortable, but the business files for protection.


After all, Donald Trump has had businesses of his file for bankruptcy protection while he still was personally wealthy and had other profitable enterprises.

[Kolesar]

13. I'd buy every girl in my hometown a color TV and a bottle of French perfume

When I win the lottery

[XemaSab]

15. If I ever have that kind of money

I sincerely hope that I will have the wisdom to buy a house, a modest car... something that will lower my monthly bills and keep them low.

I would be curious about how many lottery winners towards the upper end of that range quit their jobs. :shrug:

[Kurt_and_Hunter]

16. The odds are that lottery winners are addictive and bad with money

Lottery winnings are not randomly distributed through the population.

First, you have to be someone who bought a lottery ticket. So you obviously cannot really comprehend money.

Second, statistically wins go proportionately to people who buy a lot of tickets over their lifetimes. Those are people who can REALLY not comprehend money.

[RaleighNCDUer]

18. And ooh, aren't you so superior.

I buy three tickets a week. That $156 dollar a year. I know people who spend that much on gas every month. That LESS than two mocho-frappe-crappe coffees at Starbucks each week. AND the lottery money goes to the schools, so even if I lose, I win.

So who gives a fuch what you think?

[Mariana]

23. I agree with you.

I buy a few tickets here and there. I consider it more of a voluntary tax than an actual bet. I don't expect to win. Most people I know who buy them are like that.

I think it is true that people who regularly buy LOTS of tickets, who honestly expect to win someday, are likely to have problems.

[joshcryer]

32. I buy when it gets really high and the odds are even (basically winnings are the same as odds).

That hasn't happened in awhile now, though. Recession has really got people buying tickets.

At least the schools are getting paid for.

[awoke_in_2003]

29. +1000. nt

[joshcryer]

31. And you're still less likely to win than those people who play an unhealthy amount.

Hey I'm the same way as you, "you can't win if you don't play." But it's hardly an investment like it is for a lot of people.

[Xenotime]

45. In Texas they found the most of the lottery money wasn't going to the schools..

Sucks to be them.

[izquierdista]

19. You might be on to something.....

Even when the payout is twice the odds, say $200 million when the odds are 1 in 100 million, it's still not a good deal. Maybe for his next research project, the good professor can look at how groups of people (say the Federal government) can throw good money after bad (say wars half way around the globe) and then wonder why they're broke.

[CTyankee]

21. Great question! I love it.!!!

You are absolutely RIGHT!!!

You have a terrific analysis...my hat is off to you!!!

[awoke_in_2003]

28. "So you obviously cannot really comprehend money"

I spend $2 a week- one on wednesday, one on saturday. One of my cheaper habits. You have to play to pay, but i won't give them much.

[joshcryer]

33. Reminds me of this SMBC comic:

[proteus_lives]

35. Laughable.

"First, you have to be someone who bought a lottery ticket. So you obviously cannot really comprehend money."

I buy one powerball ticket a week, for fun and I've been handling my own budget since I was a teenager.

Try not to swing that brush so hard.

[onethatcares]

42. if you don't play, you don't ever win.

a buck a week isn't that hard to scrape up. Hell, look how much money is wasted on cable tv.

[Initech]

22. 4 8 15 16 23 42

Sorry - had to do it! :evilgrin:

[Kolesar]

41. 'cause chicks dig dudes with money.

Peter Gibbons: Well, not all chicks.
Lawrence: Well, the type of chicks that'd double up on a dude like me do.

[howaboutme]

24. Average Americans are manipulated

into believing that participation in entertainment media should be their primary concern and being a robust consumer of products second on their agenda and common fiscal sense, as in paying attention and living below one's means not even in the equation. Winning the lottery will make it right for a moment.

Our USA wasn't brought to its knees by accident it was done through marketing propaganda.

[joshcryer]

34. The main problem is that lottery winners get harassed continually by people wanting a piece.

The average joe thinks "if I won I'd help people out" so they feel entitled to harass the winners to no end, since, after all, an "average joe" is likely to win the lottery. You have to change your name, move, basically disappear if you're going to survive.

[RaleighNCDUer]

37. Would YOU harrass some distant acquaintance or stranger who hit it?

If not, why do you assume 'they' would?

[unblock]

38. jackpot winners are fed bad financial information starting with how much they've won.

most jackpot winners don't realize, or at least don't appreciate that the headline winning number won't just show up in their bank account free and clear. first, those giant jackpots are typically spread out over 20 years. second, they have to pay income taxes on it, and most likely at a higher rate than they are used to.

to most people a million dollar jackpot seems like crazy money, but spread it out over 20 years and it's just $50,000 per year. then pay taxes on it and it's somewhere around $35,000 per year, depending on state taxes and income level. that's certainly a nice extra, but it sounds far more mundane than $1,000,000 free and clear up front.

plus, after 20 years it just stops. 20 years will get you very used to a certain income stream and you have to be very careful to handle the eventual loss of that income. certainly it's easy to know it well in advance, but it's hard for people to think of a 20-year income as "temporary".



one final observation -- if lottery winners were any good with their money, perhaps they wouldn't have been playing the lottery in the first place.

i note that hoekstra draws conclusions about all people from the subset of people who play the lottery.

[izquierdista]

43. You caught that little leap in logic

As if the main reason that medical bills are bankrupting people is that their lottery winning weren't managed very well.

[DefenseLawyer]

40. I'll take the money and he can see how it all turns out.

I'm willing to take my chances- for science, of course.