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Why Do Lottery Winners Go Broke?

Why do lottery winners go broke
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Do you ever think that if you won the lottery, you would be so much happier?

Many people do. After all, who wouldn’t want a big win and a huge sum of money? But the truth is that winning the lottery jackpot can be just as much of a curse as it is a blessing. Many lottery winners lose their winnings in no time, due to excessive spending, risky investments, and poor money management.

In this article, we explore the reasons why so many lottery winners go broke.

How many lottery winners go broke?

Various news outlets report that one-third of lottery winners (70%) or people with a big windfall go broke within a few years, quoting a study by the National Endowment for Financial Education (NEFE). However, NEFE has clarified this commonly cited statistic isn’t backed by their research.

Another research has found that the average person in their 20s, 30s and 40s who received an inheritance or large financial gift quickly lost half the money through spending or poor investments.

Other studies have found that winning the lottery generally does not help financially distressed people escape their troubles. Instead, it only postpones the inevitable bankruptcy.

While there is no definitive data on the percentage of lottery winners who lose their winnings, multiple studies have shown that lottery winner bankruptcies are common.

Who plays the lottery?

Lottoland’s statistics show that a staggering 70% of UK adults participate in the national lottery regularly, with half the population playing at least once a month. Unsurprisingly, the upper and middle classes are less likely to play than the working class. Lottoland also reports that people on benefits are 4% more likely to buy a ticket than those who are not.

Similar findings were made in the United States. The same statistics show that 58% of Americans buy at least one lottery ticket a year, with men more likely to play than women. A study by Duke University also suggests that one-third of the poorest households in the US contribute to half of all lottery ticket sales.

So why do the working classes play more lottery? A German study found that people who find their daily efforts to get out of poverty futile and are surrounded by peers who also gamble spend more money on lottery tickets.

why do lottery winners go broke

9 reasons why lottery winners go broke

Lottery winners often go broke due to a combination of factors, including poor financial planning, impulsive spending, and risky investments. Let’s look into this in more detail with our analysis of nine research-backed reasons why lottery winners go bankrupt.

1. Poor financial management skills

Lack of financial literacy is a widespread problem, affecting people of all income levels. According to the Financial Times, almost half of the adults say they need help managing their day-to-day finances. A further 44% say they would be in much better shape financially if they had learned basic money management skills earlier. Even more shockingly, another survey reveals that 51% of high-income earners ($100,000+ a year) said they live paycheck to paycheck and struggle to make ends meet.

If you can’t manage your money when you have a small amount of it, it’s likely you won’t be able to manage it when you have a lot of it. This is because managing money is a skill that needs to be learned and practised. Without the skills to manage your money effectively, it’s easy to get into financial trouble, regardless of how much money you have. This lack of financial literacy and money management skills is a major contributing factor to lottery winners going broke.

Related: Why they don’t teach us personal finance in school

2. Lack of long-term financial planning

Even if you have basic financial management skills, a sudden, big cash win can be overwhelming. After all, you’re probably not used to having so much money at your disposal. Yet, very few lottery winners seek professional help. In the UK, the National Lottery has an aftercare program to ensure that all winners have access to basic legal and financial advice. However, this is not a widespread practice around the world. As a result, many winners rely on the advice and opinions of those around them, which can easily lead to poor financial decisions.

If you guess the winning numbers and win the big one, it’s important to seek professional financial advice. A financial advisor or certified financial planner can help you create a budget, develop an investment strategy, and avoid common financial pitfalls.

3. Sudden wealth syndrome

According to the book The Emotional Life of Money, lottery winners frequently become estranged from family members and friends. They also have a greater incidence of depression, drug overdose, alcohol abuse, divorce, and suicide than the average person. This can be at least partially down to something called sudden wealth syndrome.

Sudden wealth syndrome is a psychological condition that can affect people who suddenly acquire a large sum of money. It is characterised by a range of symptoms, including feelings of isolation and loneliness, guilt and shame, fear of losing money, and impulsive spending.

Coming into sudden wealth can be overwhelming. It forces you to make unexpected decisions about your work, your loved ones, and your future. Money, for all the opportunities and greater choices it affords, can be a major source of stress and anxiety if you’re not used to having it. Many people get anxious because of the sheer number of decisions to make, which can affect their mental health and personal relationships.

4. Mental accounting

Mental accounting is another psychological bias that can contribute to lottery winner bankruptcies. It refers to the different ways we value the same amount of money, depending on factors such as its intended use or source.

For example, lottery winners may view their prize money as “free money” and therefore spend it more freely than they would money they earned through work. This is because they may not perceive lottery winnings as having the same value as earned income.

As a result, lottery winners may be more likely to spend their winnings on discretionary items, such as lavish holidays or new cars, rather than on essential expenses, such as utilities and credit card debt.

5. Quitting a job without a plan

Quitting your job may seem appealing when you suddenly come into a large sum of money, especially if you’ve been dreaming about early retirement. However, money doesn’t unfortunately last forever, especially if nothing is being done to replenish it.

In addition to the financial side of things, it is also worth considering the impact that quitting your job could have on your mental health. For some people, work provides a sense of purpose and identity. Suddenly quitting your job without a plan could lead to feelings of isolation, boredom, and depression.

Consider all of the potential consequences before quitting your job after winning the lottery. It is also important to have a plan in place for how you will manage your winnings and how you will generate income after your winnings run out.

6. Uncontrolled spending

Another reason why lottery winners go broke is uncontrolled spending. It is easy to fall into the trap of reckless spending after receiving a large sum of money. Many lottery winners start living the high life and blow cash on extravagant items, such as luxury items, luxury cars, real estate and gifts to family and close friends. While individual purchases may not seem like a big deal, they can easily add up over time.

It is also important to consider the maintenance costs, tax consequences, and other expenses associated with these purchases. For example, buying a 10-bedroom mansion with a swimming pool and private garden will likely have significant maintenance costs. Lotto winners who overlook these types of expenses can quickly lose control of their budget.

Related: The 7 money personality types: which one are you?

Reckless spending habits

7. Bad investments

Money-savvy lottery winners may know that investing is important to make their winnings work for them and keep growing their net worth. But lucky winners don’t always do proper research or understand the risks involved. This can lead to bad investments that can cost them millions.

Lottery winners may also be tempted to jump on investment trends, such as cryptocurrencies, NFTs, or day trading, without fully understanding the risks. These investments can be highly volatile and speculative, and lottery winners who invest in them without doing their research are at risk of losing a lot of money.

8. Risk of exploitation and scams

Once word gets out about the newfound wealth, lotto winners may encounter individuals seeking to take advantage of them and their money. There is a good chance that strangers and even friends start to approach you with sob stories or unusual business proposals. This can make it difficult to discern genuine relationships from opportunistic ones. 

In addition, scammers know that lottery winners are a prime target, especially if they are open about their winnings. Lottery winners are often new to wealth and may not be familiar with the different types of scams that exist. Scammers may also try to take advantage of the fact that lottery winners may be feeling overwhelmed and stressed by their newfound wealth. A common example is investment scams, where scammers try to convince lottery winners to invest in risky or fraudulent investments. These investments may promise high returns, but they are often very risky and lottery winners could lose all of their money.

If you have won the lottery, be very careful about who you tell about your winnings. This includes how you show your wealth publicly and on social media. It might be wise to only tell people you trust and who will have your best interests at heart.

Related: 8 things to do to protect yourself and your money online

9. Forgetting tax

Not many things in the UK come without taxes, so you might be surprised that lottery winnings are an exception. However, there might be other tax implications to consider once you’ve banked your winnings, depending on how you spend your money.

While lottery winnings are tax-free in the UK, this is not the case everywhere. For example, the US is on the opposite end of the scale where lottery winnings are subject to both state and federal taxes. Americans can therefore end up paying more than half of their winnings in taxes.


Many of us dream of the winning ticket and believe it would bring happiness. However, multiple studies have shown that it’s common for lottery winners and people with sudden big windfalls to go broke. There are a variety of reasons why lottery winners go broke. Some of the most common factors are poor financial planning, unsolicited advice, scams, and drastic lifestyle changes after a newfound fortune.

If you win the lottery, be aware of the risks involved and take steps to protect your winnings. It can be tempting to impulsively spend lots of money on lavish items or risky investments. But keep in mind that the money can disappear quickly if it is not managed wisely. Therefore, make sure you seek professional financial advice to help you develop a plan for managing your money for long-term financial security.


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