Friday, June 25, 2004
How Many Lottery Big Winners Go Bankrupt?
During my recent ex-Chicago sojourn, I asked if anyone could verify the following quote from the June 15, 2004 edition of Redeye (the Chicago Tribune-affiliated tabloid): "...Unable to manage their sudden wealth, a third of winners end up bankrupt." Glen Raphael of blogjack.org kindly looked into the matter, and sent along an e-note including this link to some Google answers. Following a lead from Google answers, Glen identified a possible source for the 1/3 number in a quote from the Certified Financial Planner Board of Standards:
Responding to an April 2002 article in Investment News, CFP Board made an offer to the National Association of State and Provincial Lotteries to provide the organization's members with information to distribute to winners. The Investment News article highlighted the lack of financial guidance many winners receive from state lottery agencies; estimates show that nearly one-third of lottery winners become bankrupt.Glen noted that the claim does not seem to be consistent with what else is known about lottery winners, and that the CFP Board presumably has an interest in promoting financial planning to lottery winners. So it looks as if the basis for the 1/3 claim in Redeye is quite thin indeed.
Incidentally, the one fact about lottery winners that is fairly well established is that after an initial burst of exuberance, they are not made happier by the windfall. For an evolutionary economics approach to the "hedonic treadmill," download the Rayo and Becker paper from this webpage.