Broke Lottery winners // Lotteries
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Broke Lottery winners

Here’s an experiment for you: Place a small bowl of M&Ms (or your fattening/sugary vice of choice) right within reach. Leave it there all day and then count how many you ate. Think that was a test of self-control? Now try putting a huge bowl in the same place. We’d venture to guess you’ll end the day with as few left at the bottom as when you started out with less.

Indeed, it’s hard to stop when it seems like you’re hardly making a dent. That’s because we tend to adjust our consumption based on what’s available to us – and we aren’t just talking about candy. Many people treat money the very same way.

From lottery to bankruptcy

According to a 2010 study by researchers at Vanderbilt University, the University of Kentucky and the University of Pittsburgh, the more money you win in the lottery, the more likely you are to end up bankrupt.

The authors divided past lottery winners into two separate groups: Those who had won cash prizes between $50, 000 and $150, 000, and those who had won $10, 000 or less. What they found is that those who had won the more sizable sums were more likely to have filed for bankruptcy five years later. Similar research from the National Endowment for Financial Education estimates that 70 percent of people who had unexpectedly come into large sums of money ended up broke within seven years.

Now just imagine what millions could do…

Why we love the lottery

It’s thrilling to believe that a handful of numbers have the power to change your life. What else can you buy for a dollar or two that has the potential for that kind of return? It’s pretty seductive stuff. Plus, it’s a lot more fun to fantasize about winning big, than it is to think about some of the other things that are just as likely statistically (that would be getting struck by lightning or having identical quadruplets…in which case you’d really need to win the lottery).

Unfortunately, when it comes to buying a lottery ticket, our cost-benefit analysis tends to be a little off the mark. According to Statistics Canada, Canadians spend nearly $500 per year on lottery tickets, on average. While lower-income Canadians spend less than the average (about $235 per year), that expense makes up a considerably larger percentage of their income.

A 2008 study by researchers at Carnegie Mellon University examined why those with the lowest incomes in the United States tended to spend such a large percentage of their income on lottery tickets (up to 9 percent by some estimates). What they found was something called the “peanuts effect”. When participants were given a dollar at a time and asked whether they’d like to spend it on a lottery ticket, many more chose to do so than those in the other group, who were given $5 and asked if they’d like to spend it all on lottery tickets. In other words, some sums of money are so small that we tend to assume they don’t even count. This held true even for the poorest people in the study, many of whom got by on less than $15, 000 per year.

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