Friday, July 12, 2019

Why Most Lottery Winners Go Broke

Have you ever wish you can win millions of dollars from a lottery purchase. The chances of winning the lottery is so slim that it’s more likely you get strike by the lighting compared to winning lottery jackpot. It’s a no brainer that winning the Lottery is everyone’s’ dream. I myself wish I can win millions of dollars from purchasing a lottery ticket. Winning the mega million dollar lottery can be most ecstatic moment for anyone who chose the right numbers. Winners that have won millions of dollars have so much money that they don’t ever have to work in their life ever again. However if you actually study most lottery winners who had won the jackpot actually went broke in the end. There are studies that lottery winners are more likely to declare bankruptcy within three to five years compared to the average American. An estimate of one third of lottery winners later had to go through bankruptcy. In addition, studies also found that instead of getting people out of financial trouble, winning the lottery instead got them into more trouble. How could it be possible if they have won so much money? In this article, I’ll explain why most lottery winners go broke in the end.

Easy Come, Easy Go
The reason why most lottery winners go broke in the end is because they have won money that they didn’t work for. When people build their fortune through hard work and dedication, it makes them want to preserve it and have the next generation like children to continue to build the wealth. When a person won huge sum of money such at an instance, they tend not to care about the wealth management. There’s a saying “Easy come, easy go”. Based on a study by Market Watch, the percentage of lottery winner going broke is double than the average Americans. Studies also shows that majority of people who plays the lottery comes from low-income families. Most of these low-income lottery winners tend to have below average education, resulting them not be able to manage the wealth they have gained instantly. When these people won the lottery, they don’t see their prizes as a life changing gift to a better future. Instead, they use this marvel moment to live their life as if there is no tomorrow and spend far too much without understanding the consequences. I mean why have to worry about money if you already have won millions of dollars. Because of this mentality, it has made many lottery winners go broke in the end.


Feeling Obligated to Keep Giving Away Money
Of course if you win the lottery, you are pressured to share the winnings among your close ones such as family and friends. I mean after all you have made a big win instantly and this will attract a lot of attention that you have a lot of money. You are instantly a multi-millionaire, who wouldn’t recognize you. However, the problem is that people can be greedy thinking that because you are a lottery winner means that your money is unlimited. People close to you might demand help and get money from you. This of course makes you feel obligated to keep helping contributing money and will feel guilty if you don’t help the person who is less fortunate. Many lottery winners went through struggle to say “no” to friends and family who hope to join the fortune they inquire.

I’m not a lottery winner; however I came from a family who has a good financial background. My dad who starts from nothing is now a successful business owner who built his wealth and fortune through hard work and dedication. He enables my brother and me to have the opportunity of having our education overseas and a satisfying life. Without his hard work and dedication, my family won’t have the facilities we have right now. However, since at young age my dad didn’t spoil my brother and me by supplying money all the time. He wanted my brother and I to always find solution to make ourselves to have the mindset to be financially independent without having him to keep contributing money all the time. There’s a saying “Give a man a fish, and you’ll feed him for a day. Teach a man to fish, and you’ve fed him for a life time”. The lessons that my dad taught my brother and me had made us understood that to achieve great wealth require hard work and dedication. I’m glad that my dad has brought us up through this tough love teaching. This had made me to value that money doesn’t come from a tree and require hard work to earn it. Anyways understanding that making money is not an easy task, I sometimes have trouble of feeling guilty when I’m cheap. Some people felt that I’m selfish and not willing to share. They don’t understand the reason behind why I can be quite frugal with the wealth I have accumulated. When the money you accumulated is from sweat and discipline, it is difficult for you to let go of it easily. Unlike lottery winners who had won huge amount of money at an instance. This made them not understand the proper steps of building wealth. This makes them too generous to keep giving money to anyone since they feel that the money they had won will never be finished. I’m not saying that you shouldn’t be generous to the less fortunate. I believe that if you have accumulated incredible wealth, it’s great to be generous. I have seen many successful self-made business men who decided to give majority of their wealth away to charity in order to make our community into a better place. For example, my idolized investor Warren E. Buffett had pledged to give away majority of his wealth to charity. He has been idolized since the wealth he accumulated has been a long journey for him. However, if you feel obligated to keep giving away your money away, you would eventually go broke yourself. Many lottery winners who won big don’t know the limit, and felt that their money is unlimited. This reason have a negative impact that made these lottery winners eventually go broke in no time.


Tax Obligation Can Be Complex
For many lottery winners who went broke and run into debt is due to the tax obligation that they have to follow. There are some countries that exempt lottery winners from paying tax, however majority of the countries require lottery winners to pay huge tax for the money they had won. The number could go as high as 40 to 45%. In the United States, lottery winners are required to pay income tax for their winning, which mean that they have to pay twice for the money they won. Not only they have to pay a high amount of tax, lottery winners are also required to pay taxes of money they give away. This could go as high as 40% of the amount they give away. This is why it is crucial for lottery winners to get information updated since tax obligation is totally different and requires a tax adviser to aid them.


The Winning Amount Is Less Than They Might Have Hope
Lottery Winners might actually be surprised that the amount they have won might be less than they thought. There are different ways for lottery winners to receive the money they have won. They could either take annual payout for a long period of time, or accepting the lump sum. However, if a lottery winner cash out their winning in a lump sum, they are obligated to pay a huge tax on it. This drastically decreases the winning pay out due to tax; leaving the lottery winners with 60 to 75 percent of the actual cash prize. This can leave the winners with money a lot lesser than they have expected.


They Keep Spending
Imagine you have won $100 million dollars from a winning lottery ticket. The happiness and excitement makes you become a totally different person, and this is the reason that brings them to their downfall. The wealth that most lottery winner received suddenly makes them feel nothing can stop them and they lose their sense of reality. Due to this, it has made many lottery winners make rash and poor decision. They think that they have unlimited amount of money that can’t be finished, which of course make them spend on so many unnecessary luxury things. They buy huge mansions, lavish sports cars, big yachts and many other toys that have high upkeeps. They don’t understand the wealth management technique that made a person stay wealthy. Not being able to calculate and budget their spending habits made many lottery winners accumulated huge expenses that eventually deplete their winning fortune. Lottery winners overlook these types of expenses because they feel that they will never go broke. However due to these spending habits eventually make them go broke.


Not a Good Saver
Lottery winners not only spend their winning money recklessly, they might not be a good saver to begin with. Like I mentioned above, lottery winners feel that they will never go broke so they feel that they don’t ever have to save the money they won. Most of these winners have no experience with extraordinary wealth they had won instantly. Lack of financial knowledge make them unprepared for the current situation they are in. Without realizing the importance of saving, most lottery winners only spend and keep spending until they go broke.


Losing Money in Bad Investments
Not understanding to allocate their wealth into a good investment made them a poor investors. Most lottery winners don’t put research into the investment they put their money into, and sometimes they don’t even comprehend how the investment actually works. To be a successful business man and investor, you are required to have the knowledge and education to make wise investment choices. However, since many lottery winners feel that they won’t go broke, they ignore this issue. This result them to invest recklessly and lose money on their investment.

This does not apply to only to lottery winners, but anyone who doesn’t understand to invest and allocate their wealth carefully. My dad once shared his experienced about his childhood to me. He mentioned that when he was still poor and living in the village, he knows the sons of a wealthy business owner. The sons were rich because of their dad; however they are financially uneducated and not hard workers. They invested their dad’s money without realizing the risk factor and feels that their wealth won’t go under. Eventually, when their dad passed away, majority of their dad’s wealth went under. They eventually went poor since they didn’t understand how to maintain the wealth. I’m grateful that my dad shared his life story to me since this makes me understand that a person can lose his/her wealth if you are financially uneducated and make bad investment choices.

Moreover, there is a story of Huntington Hartford who was born in 1911 to until 2008 when he passed away. He was the heir to the Great Atlantic & Pacific Tea Company. This company was the Wal-Mart of its time that ceased supermarket operations all over United States. When Huntington Hartford was 12 years old, he inherited approximately $90 million which is approximately $1.3 billion (after tax) in today’s term if adjusted after inflation. That’s a tremendous amount of money during that time, however surprisingly Huntington Hartford declared bankruptcy in 1992. That’s approximately 70 years after being handed the large amount of inheritance. He made poor investment combined with a lavish lifestyle that made him lose everything. After declaring bankruptcy, he lived as a recluse with his daughter in the Bahamas until he passed away. There is a research that the average person in their 20s, 30s and 40s who receive inheritance or large financial gift will quickly lose half the money through spending or poor investment. These stories and research teach me that you can’t stay wealthy all the time if you keep making bad financial choices. It inspired me that I should continue to work hard and always learning to become a better investor as well as a great business man.


Slip into Depression and Spend More on Drugs and Alcohol
They say money can’t buy happiness. This is sad but this is the truth behind it. There will be many conflicts to a lottery winner. Having to win a large amount of money can put people to constantly requesting for money or help. There will be people who you are close to resent of the money you inquire. This can lead lottery winners to escape their problem to drugs and alcohol, which of course is not healthy life style to begin with. Even with the huge sum of money they have, they will end up losing all their money to drugs and alcohol. In addition, there is a story that happened to a family who won the lottery to have their loved ones passed away due to drug overdose. Jack Whittaker is a lottery winner who won $315 million in West Virginia in 2002. During the interview, he mentioned that he wish he had torn the winning ticket. His daughter and granddaughter died due to drug overdoses. It’s strange on how many lottery winners struggle with suicide, depression and divorce. The money they’ve won should actually have improved their quality of life but instead it ruined their lives.


Bottom Line
After doing research of why many lottery winners eventually went broke after their winning shows that not being able to manage your wealth carefully will lead you to lose everything. It doesn’t matter how much money you receive either from inheritance nor lottery winning, if you are not financially educated and responsible, you can end up losing them in the end. It’s really difficult to adapt life style of having wealth and losing it all. I hope you readers learn that money management and financial education is crucial for everybody to maintain their wealth. You don’t want to make these financial mistakes since you will regret it in the end. After writing this article, it makes me understand my dad more of why he doesn’t want to keep giving money contribution to me and my brother. Through his tough love, he actually wants me to become a financially independent as well as literate so that I won’t fall in the future when he is not around anymore.   

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