How prepared are you to win a life-altering jackpot?
By Bill Burton
I’m sure many of you have read about athletes who signed multi-million dollar contracts right out of school, only to wind up broke after their playing careers ended. They essentially won the equivalent of a life-changing jackpot, but squandered it due to a series of poor financial decisions.
If you won a jackpot larger than $5,000, what’s the first thing you would do with the money?
If you answered that you would immediately stick your winnings in the bank, or invest it in a wise, safe manner, then you’ll probably be just fine if and when your big slot machine bonanza arrives. But if your first thought was to purchase something extravagant, then you might have a problem holding on to any of your winnings—whether it’s a modest win tomorrow, or a life-changing score in the future.
The term “found money” is used to describe any money that you did not work for. It could be money that you won gambling; a gift; money you inherited; or cash that you literally found. Most people treat “found money” differently than the money they earn. If you were walking down the street and found $100, you’d be more likely to spend that money frivolously than if you’d slaved away on a Saturday to earn that same amount. This type of attitude towards “found money” is one reason why many winners of large sums of money go broke within a few years of hitting the jackpot.
I recently read the results of a study, conducted by researchers from three universities, which will appear in a financial journal edited by Harvard University. The study was conducted in Florida among lottery winners, but could easily apply to any jurisdiction where gambling takes place and large jackpots are paid out.
The researchers identified 35,000 people who won between $600 and $150,000, along with 153 people who won more than $150,000, between April 1993 and November 2002. They discovered that 1,943 (or 5.5 percent) of the winners declared bankruptcy within five years of winning their jackpot. The study revealed that those people filing bankruptcy who had won between $25,000 to $150,000 had little or no assets above what they had before they won the jackpot. The money simply seemed to evaporate.
Mark Hoekstra, the co-author of the research paper and an assistant economics professor at the University of Pittsburg, said, “The fact that winning a large sum of money only postponed bankruptcy, rather than prevented it, did not surprise me. But I was struck by the fact that the when the recipients did file for bankruptcy, they didn’t have much of anything to show for their winnings. It didn’t go towards a house, paying down debt, or buying assets that would be worth something a few years later.”
This is not the first study done on jackpot winners who wound up filing for bankruptcy. There have been several studies over the last few years that have published similar results. I’m sure many of you have read about athletes who signed multi-million dollar contracts right out of school, only to wind up broke after their playing careers ended. They essentially won the equivalent of a life-changing jackpot, but squandered it due to a series of poor financial decisions.
I have personally witnessed a similar situation. A few years ago, one of my co-workers had the good fortune of winning a $20,000 slot jackpot. The following week he went out and bought a new motorcycle, and then went on a cruise with wife. Less than a year later he told me that his house was in foreclosure and he was broke. He is a well-educated man with a good-paying job, yet he squandered his winnings instead of using them to improve his financial situation.
In his best-selling book Rich Dad Poor Dad, author Robert Kiyosaki wrote that most people want more money and think they will “get ahead” in life if they earn more. However, when they make more money, they simply spend more. He blames lack of financial education as the reason why most people can’t acquire lasting wealth. It’s also the reason why people who suddenly become wealthy through gambling winnings, or inheritances, have such a hard time keeping their newfound fortune.
Financial education is not taught in school, and many parents never discuss financial matters with their children. Consequently, many people reach adulthood with no real understanding of how to set a budget or save for the future. Fortunately, we live in the information age—so educational materials about finance, budgeting and investing are readily available for free, or at a modest cost.
There are numerous websites, books, seminars and television shows devoted to teaching people about personal finance, whether you’re a complete novice or an experienced investor. Many people are confused or scared at the thought of studying finance, so they tend to ignore it.
If you don’t understand how manage your own finances, you are destined to have problems. The good news is that there is a simple but effective formula for controlling your finances:
- Determine your monthly income
- Determine your monthly bills
- Set up a budget so that your monthly bills do not exceed your income
- Include a certain amount of money to put into savings each month
Be Prepared To Win
As strange as it may sound, most people are not prepared to win a huge jackpot when they gamble. As much as we dream about hitting the big one, most of us don’t believe it will happen—so we have no specific plans for the money, other than thinking about things we would splurge on.
I usually write about tips for managing your money at the casino, but true money management starts at home. Becoming financially educated, by learning to set up and live within a budget, will make you a winner in all aspects of your life. It will also prepare you to handle your winnings if you do hit a jackpot at the casino. You don’t want to become one of the statistics in the next survey about winners who have gone broke.
Until next time, remember: luck comes and goes, but knowledge stays forever.
Bill Burton is the author of “1000 Best Casino Gambling Secrets” and “Get the Edge at Low Limit Texas Hold’em,” which are available online at www.billburton.com. He’s also an instructor for Golden Touch Craps: www.thecrapsclub.com
Found Money Is Often Lost – Jackpot.