What Becomes of Lottery Winners?

Millions are buying Powerball tickets assuming that winning will bring them a prosperous, work-free life, but research suggests they shouldn't be so certain.

Stephanie Keith / Reuters

This week, many Americans will be buying into the same dream: winning the unprecedentedly large $1.3 billion Powerball jackpot on Wednesday night. Since last week, when the jackpot had accrued to over $500 million, Powerball tickets have been reportedly flying off bodega and convenience-store counters. The odds of winning remain 1 in 292 million—that’s why the lottery is sometimes called a “stupidity tax”—but a ticket’s $2 pricetag does make it a low-risk impulse buy. (Alex Tabarrok, over at Marginal Revolution, suggests that those who participate should buy tickets early in order to enjoy their real value—the pleasure of anticipation—for longer).

Many people are hoping to acquire this tremendous windfall, but is what they’re after something that will actually make them happy? Anecdotes about how winning the lottery can be bad luck abound—a winning ticket has led some “lucky” winners into bankruptcy, or worse. But there’s also the possibility that all of the lottery winners who are living comfortably don’t make headlines.
Researchers have tried to figure out which of these narratives is more accurate by looking into two questions whose answers lottery players assume to be in the affirmative: Does winning the lottery make people rich in the long run? And does an influx of tons of cash make people happier? Their results, though, suggests that these answers aren’t so straightforward.

In the late 1970s and ‘80s, the sociologist H. Roy Kaplan performed now-classic research on what became of lottery winners. His most famous study asked lottery winners how happy they had been before and after their big checks arrived. That 1978 study, which had a very small sample size, famously found that lottery winners were not that much happier than the control group—a bunch of people who didn’t win the lottery—after their win. (A 2008 Dutch study concluded the same thing.) Kaplan did a bigger study in 1987 on 576 lottery winners, and found that “popular myths and stereotypes about winners were inaccurate”—by which he meant that American lottery winners did not typically quit their jobs and spend lavishly.

That finding has been confirmed in more recent research. A 2004 study found that 85.5 percent of American winners continued to work after winning the lottery (with 63 percent working for the same employer as before), and that the more important work was to a person, the more likely they were to keep working. A Swedish study arrived at a similar finding: 62 percent of Swedish lottery winners continued to work. A study of U.S. lottery winners from the 1980s found that winning a lot of money (rather than just a little bit) increased reported savings rates, and large winners tended to scale back on the number of hours they worked. There may be cultural differences at play: While 85.5 percent of American winners stuck with their jobs, surveys by Camelot, the operator of the British National Lottery, found that a smaller proportion—41 percent—of winners kept their jobs.

And how do winners manage their finances? The narrative of the short-sighted lottery winner existed as far back as the 1970s. There is indeed some data to back that up. A Camelot survey found that the most popular things Brits spent their winnings on were relatively flashy—properties, cars, and vacations. Similarly, an oft-quoted study of 35,000 lottery winners in Florida found that 1,900 winners filed for bankruptcy within five years—and that while the large infusion of cash reduced the probability of bankruptcy during the first two years of winning, it increased the odds of bankruptcy three to five years out. (However, the researchers only tracked down people who had won $150,000 or less, and these bankruptcy numbers might change with higher sums.) As for the long term, research regarding an 1832 land lottery in Georgia found that the descendants of those winners did not go on to be wealthier after a few generations.

Winners often worry that they will be flooded with requests for money from family and friends, and though there aren’t hard numbers on this, the Camelot survey found that all winners combined had spent over £1 billion on family and friends—a significant amount as that’s 14 percent of the group’s £8.4 billion winnings (investment in their children exceeded this amount). One thing has changed since the 1980s though: Lottery players are increasingly (and disproportionately) from low-income households (though a jackpot of over $800 million gets rich people playing too), and may have less personal-finance knowledge, particularly when it comes to dealing with large sums of money. In the U.K., the National Lottery actually sends legal and financial experts to the homes lottery winners of over £500,000 to offer financial planning advice.

Even with all that research in mind, the overall picture of how lottery-winners fare is still very hard to determine. First, many of these results are found by surveying winners, and self-reported data is notorious for its low quality. Second, it’s not exactly easy to get lottery winners to surrender their financial records for research, so there are likely large holes in even the most scrupulous research. And finally, the fates of the lottery winners who researchers have the easiest time tracking down might skew negative, because tales of financial ruin are more publicized in the media than tales of stability.

In the end, while winning can turn out bad, the real bad thing is probably the lottery itself: America, especially its poor households, spends way too much on it, and the odds are worse than at a casino.