Why People Who Win The Lottery End Up Broke
Many lottery winners end up worse off than they were before they won. “A lot of people who win are financially OK when they win,” says Susan Bradley, a certified financial planner who runs a practice specializing in helping people who come into sudden wealth. Roughly one-third of lottery winners find themselves in serious financial trouble or bankrupt within five years of turning in their lucky numbers. For many people who come into wealth suddenly — whether they win the lottery, receive an insurance settlement or an unexpected inheritance — if they have not acquired good money skills prior to this windfall, often they struggle and make poor choices.
Financial windfall coupled with reckless buying and no concept of money almost always leads to trouble. This is especially true for people who decide to use their winnings to create a new business. Sometimes people just don’t compute the numbers. The best thing to do is to hire someone with expertise handling money.
What typically happens after a lucky lottery winner are contacted by a company that actually takes money away from lottery winners. Soon after winning in April 2004, Lisa Arcand, winner of $1 million, said she was aggressively pursued by Stone Street Capital, a financial services company that offered her a lump sum of money up front in return for all or a portion of her $35,000-a-year lottery proceeds. “They call people who hit the lottery and offer to buy the ticket off you,” she said. “The offer was less than half the cash value. But I sold a piece of it — $15,000 a year, and I got $200,000 up front.” The company’s website makes it clear what the firm is all about. “Free Quote, call 1-800-LUMP-SUM,” the home page states. A link brings visitors to a page that offers a variety of options for turning 20 years of lottery payments into quick cash.
When lottery winners come in to collect their prizes, they are taken into a room called “The Winners’ Circle,” where lottery officials talk to them about how to manage their new-found money. “Sometimes the winners listen, and sometimes they don’t,” says Dan Rosenfeld, spokesman for the Massachusetts State Lottery. “Our customer service people talk to them about the folks who are going to call them on the phone and will try to get them to sell their ticket.” The primary message from lottery employees to winners is this: Get a lawyer or a certified financial advisor.
Example of What Not To Do
When Arcand won, her enthusiasm got the best of her. One of the first things she did was throw a party for friends and family, and it rapidly spiraled out of control. “I spent $3,000 on a party at Mill City — there were 20 of us and people were ordering $200 bottles of wine,” she said. She didn’t hire a financial planner. “I talked to a few people, but determined that putting money away wasn’t worth it,” she said. She bought a house, went to Florida for vacation, got new furniture and bought a plasma TV, she said. Plus, she got her son into Central Catholic at a cost of $10,000 a year. Then she decided to open the restaurant. You can figure out the rest.
