By Don McNay
CNHI News Service
“Keep on working hard boy, try as you may, your going to wind up where you started from.”
I stumbled upon a fascinating academic article, entitled "The Ticket to Easy Street? The Financial Consequences of Winning the Lottery".
It was written by three economics professors, Scott Hankins at the University of Kentucky, Paige Marta Skiba at Vanderbilt University, and Mark Hoekstra at the University of Pittsburgh.
The professors were not just looking to learn the habits of lottery winners. They were searching for the answer for a much larger question, “whether a bailout will have a permanent impact or whether it will merely postpone financial pain.”
In other words, does throwing money at people solve financial problems or just push them down the road?
The paper gives empirical proof two things that I've been saying for a long time: 1. Bailouts don't work. 2. People who get large sums of money run through it in five years or less.
The professors came up with an ingenious and comprehensive way to do their research. They obtained a list of Florida lottery winners of the Fantasy Five lotto game from April, 1993 to November, 2002.
They compared those names to Florida bankruptcy records to see how many of the winners filed bankruptcy and when.
Filing bankruptcy means a person has hit bottom. You wouldn’t expect that to happen to a lottery winner. Yet it does. Over and over again.
In the first couple of years after winning a jackpot, people who won small amounts were more likely to file than large winners. That makes sense. Someone with a large amount of money a winner can initially weather a bad time or keep creditors at bay.
After three years large winners are more likely to file bankruptcy than small winners. Also, people who received large sums did not use it to pay down debt or increase assets.