Here’s How You Should Treat Your Lottery Winnings, According To An Economist

Lottery
Drew Angerer / Getty Images

The bad news is that the Mega Millions jackpot of over $1.5 billion has already been won. The good news is that the Powerball windfall of $750 and growing, is still up for grabs. Somebody is going to win it. So it might as well be you.

That said, according to an economist writing for CBS News, that may not be such good news.

“As I noted in a recent article, people who come into large sums of money end up bankrupt. My own research found that the average person in their 20s, 30s and 40s who was given an inheritance or large financial gift spent or lost half the money relatively quickly. A 2011 paper found that people who won mid-sized prizes in the Florida lottery were more likely to file for bankruptcy than small lottery winners.”

In a nonintuitive sort of way, it is understandable why people who are given a lot of money would suffer financial difficulties. The lack of money is only one part of the poverty equation. The other is lacking the skills to properly manage money. It is a well-documented fact that eliminating the first problem does nothing for the second.

Ship wreck
  Mark Wallheiser / / Getty Images

A person with an instant fortune will be tempted to make a lot of lifestyle purchases that must be maintained. Items such as a large house or boat require constant maintenance that is often overlooked when counting the cost. That is why the first piece of advice offered by the economist is self-control.

There is also the matter of handouts. It is an axiomatic fact that when a person comes into a large sum of money, they discover all manner of long-lost friends and relatives. Giving them large sums of money can not only ruin you but them as well. Giving away smaller amounts to close friends and relatives is better.

To help you manage your fortune over time, you are advised to take the money over a 30-year payment as opposed to a lump sum. This gives you protection against yourself. Even if you blow through the first few payments, there are more to come.

Finally, consider getting a financial advisor. And don’t think of yourself as a millionaire. Think of yourself as a person who makes a decent middle-class income of $70,000 to $100,000. Don’t retire. Continue to find a way to stay gainfully busy and continue to be a contributing member of society. Early retirement is strongly correlated with shorter lifespans.