On Average, People Who Earn Less Than $13,000 a Year in the U.S. Spend 5% of Their Gross Earnings on Lottery Tickets
It’s been called a voluntary tax on the poor and under educated, with people spending a whopping $60 billion a year in the United States alone on lottery tickets, most of which are purchased by low income individuals. (All total, about 20% of Americans play the lotto). Despite the high number of lotto tickets purchased annually, when playing the lottery (in all its forms), you’ll win an average of just 53 cents for every $1 you spend, making it one of the lowest return rates of any form of commercial gambling, and thus extremely profitable for the various government bodies who run the lotteries.
According to a study by Emily Haisley et al, they can get away with this low return rate, by pricing the tickets so cheap compared to the potential payoff, that people just keep coming back for more. Low income people, among other reasons according to the study’s findings, were significantly more likely to play as they perceive their own wealth to be lower than average. Thus, they attempt a low cost way (individual ticket wise) to rectify the issue, even though they know the chances of it working out are incredibly low. Now, if they were to add up the total amount they spend per year on lottery tickets and had to pay it in one lump sum on the set of tickets all at once, they’d not be nearly as willing to play.
The most startling number in all of this is that those who make $13,000 per year or less in the United States, on average, spend about 5% of their gross annual earnings on lottery tickets.
Winning the lottery isn’t apparently all it’s cracked up to be either. There was a recent study done by Mark Hoekstra from the University of Pittsburgh covering 1,900 Florida lottery winners who won $50,000 to $150,000. According to this study, this group was significantly more likely to go bankrupt within five years than small time lotto winners (under $10,000), and about twice as likely to go bankrupt over the normal population. Just as significant, before winning, these $50,000-$150,000 lotto winners were no more or less likely to go bankrupt than the general populace. The act of winning itself doubled their chances of going bankrupt.
What’s even more surprising is that in the vast majority of these cases, the $50,000-$150,000 was significantly more than the total debts held by the winners at the date of winning, yet instead of just paying off their debts, most simply blew the money and then often acquired debt at a faster rate once the money ran out.
According to wealth counselor Szifra Birke, an estimated 1/3 of all big ticket lotto winners and others who suddenly come into wealth will file for bankruptcy within 5 years of receiving this cash influx. Birke says:
For many people who come into wealth suddenly – whether they win the lottery, receive an insurance settlement, or an unexpected inheritance – if they have not acquired good money skills prior to this windfall, often they struggle and make poor choices. If someone is in trouble financially, if they’re spending more than they are making or are relying emotionally on the lottery to bail them out, then that’s a big problem.
Surprisingly, those who get the money and then choose to start their dream business, rather than just blow the money, these people are generally no better off than those who just spent the money on hookers and blow. She states they usually have no idea how to run a business and just throw money at any problem that comes up, rather than develop a business that can potentially be profitable someday. For example, Ken Proxmire- who was a machinist when he won $1 million- rather than blow it on nothing like so many others, he did the sensible thing and started a business, a car dealership. Within five years he had to file for bankruptcy and was back working as a machinist.
Even for those who “keep their head down”, so to speak, and use the money wisely, there’s still some negatives that come with it. Fifty-three year old Steve Granger in 2009 won just $900,000, receiving only $600,000 after taxes. Despite the modest winnings, which he and his wife simply put away for retirement, he and his wife began to be met with resentment from those they knew and started hearing things like “There goes the lottery people,” said in spite. There was also a phase that lasted a while where random strangers kept grabbing him and his wife “for luck”.
This sort of thing wasn’t limited to the Grangers. The son of Billy Bob Harrell (you’ll read more about their sad story below), Ben, stated, “First of all, we had to change our phone number about seven times. It was supposed to be unlisted, but then someone would call. People seemed to have no trouble getting the number. We also got a mountain of mail.”
Worse, they were bombarded with “business opportunities” from random entities, along with the letters from individuals, mostly M. Thénardier-type letters – people sending sob stories, maybe made up, maybe not, and asking for a share of the winnings. For instance things like, “People would tell you that their daughter was dying, and couldn’t we just send a check to help her live. They’d tell you their life story, and you’d like to believe them, but you just can’t,” said Ben.
They also had numerous people driving by and knocking at their door for a similar purpose. One woman at Walmart grabbed Harrell’s wife, Barbara, after spending $500 on lotto tickets. She told Barbara that if she lost on the tickets, with their “luck” not working on her in that case, they had better refund her money. This is all not to mention the occasional problem suffered by some lottery winners where people come out of the wood-works to try and find an excuse to sue them.
Then, of course, besides such minor drawbacks, there are the train-wrecks whose winning the lottery, rather than make their lives better, made them demonstrably worse. Below are just a few of the many such stories:
1) Jack Whittaker: Unlike everyone else on this list, Whittaker was already wealthy when he won $314.9 million in 2002 ($390 million today). His net worth at the time was about $17 million (he owned a contracting firm). He soon was robbed twice, once for $545,000, and the next for $200,000. There was another plan by two employees of a strip club he frequented (the same club he kept getting robbed at) to drug him and then rob him that way. Whittaker also claims a group of thieves managed to successfully cash 12 forged checks at 12 different branches of his bank, pulling money from his account.
He was also sued by the Caesar Atlantic City casino, with them claiming he had bounced $1.5 million in checks while gambling there. He countersued them, claiming that the $1.5 million was supposed to come out of money they owed him for developing a slot machine they use. He was also sued by various other people trying to get money out of him (whether legitimately or not).
His granddaughter’s boyfriend was found dead in Whittaker’s home, overdosed on oxycodone, methadone, meperidine and cocaine. A few months later, his granddaughter, Brandi Bragg, herself overdosed and died, found 11 days after she went missing wrapped in a plastic tarp with her body dumped. Despite this, no one was charged with any crime, something Whittaker was furious about with the police. “Go after whoever killed my granddaughter with as much zealous as these butt holes are trying to convict me of something I didn’t do.” (referring to his DUI)
In 2009, his daughter, the mother of his granddaughter that was either killed or overdosed, was also found dead at the age of 42.
Said Whittaker of winning one of the biggest prizes in lottery history: “I wish I’d torn that ticket up.”
2) Billy Bob Harrell: Harrell won $31 million in 1997 ($43 million today), taking the 25 annual installments rather than the lump sum. At the time, he was working at the Home Depot after being laid off of a couple other jobs in the previous few years. He quickly bought himself a ranch, six other homes for his family, and several new cars.
After the initial splurge, he spent very little on himself and simply had his checkbook out and ready for anyone who contacted him saying they needed money. This became problematic because he started getting more requests than he could afford. The sob stories people were telling him, he was believing, unlike the rest of his family, and it supposedly tore him up inside, according to his son. He even lost 50 pounds (220 to 170) apparently from stress.
His wife, Barbara Jean, soon divorced him. As funds became tight, he became involved with a Texas company that promised him $2.25 million if he’d sign over 10 years of his winnings (about $12 million). This is illegal under Texas law and a horrible deal to boot, but despite everyone, including his financial adviser, advising him against it, he was determined to go through with it. When asked why, he stated that he was in so deep; he figured if he backed out, they’d just sue him for the money anyways. He signed the deal.
20 months after winning the lottery, he attempted to reconcile with his wife, but she refused. His son then drove to his mother’s house and found his father, naked, and having shot himself in the chest with his shotgun. There was a note “I didn’t want this. I just wanted you.”
There was no sign of the $2.5 million he’d traded the $12 million worth of installments for, and no money at all available to pay the estate taxes. His once fairly happy family was broken and the grandparents reportedly were feuding with his kids, convinced it wasn’t suicide, but murder, despite all evidence to the contrary.
Before his death, he told his financial adviser, “Winning the lottery is the worst thing that ever happened to me.”
3) William “Bud” Post III: Bud won $16.2 million in 1988 (about $30 million today). After winning, his ex-girlfriend sued him, claiming she deserved a share of the winnings. She won. His own brother hired someone to kill him and his wife, no doubt hoping to be able to inherit some of the winnings. William quickly blew through the money buying houses, investing in various business ventures proposed to him (read: people probably scamming him), cars, and other such things for himself and his family and friends who incessantly bugged him for money. Within 1 year of winning the $16.2 million, he was $1 million in debt, then filed for bankruptcy, and started living on food stamps and a $450 social security stipend. He died in 2006 at the age of 66.
He said of winning the lotto, “I wish it never happened. It was totally a nightmare.”
4) Victoria Zell: Zell won an $11 million Powerball jackpot in 2001 (about $14 million today). Within four years, the money was all gone and Zell ended up in prison after taking drugs and getting drunk and deciding to drive her car. The car accident which ensued resulted in the death of one and another person being paralyzed.
5) Michael Carroll: Carroll won £9.7 million in 2002 ($15.4 million U.S. then, and about $19 million today). When he showed up to collect his winnings, he was wearing an electronic offender’s tag. At the time, he was unemployed and didn’t even have a bank account. Despite his winnings, he was turned away from the bank the lottery recommended he open an account with, due to his criminal record.
He was soon blackmailed out of £130,000 by people threatening his family if he wouldn’t pay them. He also gave his mother and his sister each £1 million- most of the money, though, he spent himself. He bought four houses, a vacation home in Spain, 2 Mercedes-Benz and 2 BMWs, and spent many thousands on jewelry, drugs, gambling, and prostitutes.
Carroll was sentenced to 240 hours of community service after catapulting steel balls at various cars and shops and causing severe damage to them. He was later sentenced to nine months in prison for a public brawl. If this sounds severe, it should be noted that he had 42 previous criminal offenses.
Within 18 months, he’d spent the vast majority of his winnings (all but about $500,000). Within four years, he was forced to start taking out loans to be able to keep his main home. When he finally declared bankruptcy in 2010, his £340,000 mansion that he’d put another £400,000 into ended up selling for just £142,000 because of how much damage he’d done to it.
At that point, he was living off the U.K. equivalent of welfare and one year later tried to kill himself twice, the first time rescued by a friend as he was hanging himself, the second time medics were called in after he’d tried to slice his throat with a knife.
6) Willie Hurt: In 1989, Hurt won $3.1 million ($5.5 million today). This was the start of his problems. Within just two short years, he ended up divorced, was charged with attempted murder, lost custody of his kids, developed a cocaine addiction, and had spent his entire winnings.
7) Suzanne Mullins: Mullins won $4.2 million in 1993 ($6.4 million today). She did the smart thing, for those who don’t know how to manage money anyways, and went with the yearly payouts. But then she did the stupid thing and blew her annual winnings and then started borrowing against her future winnings. Finally, so in debt, she switched to the lump sum payout. The thing is, she didn’t use that money to pay off her debts. When the loan company came after her for the amount owed, they found she didn’t have any money nor significant assets to show for her winnings. She had simply blown it all.
8) Abraham Shakespeare: Shakespeare, who was near illiterate and had dropped out of school in the 7th grade, won $31 million in 2006. Like so many others, he didn’t spend much on himself. He just bought himself a $1 million home, a Nissan Altima, and a Rolex watch. Beyond that, he ended up blowing much of his money on family and friends. Eventually he wised up, stating, “I’d have been better off broke…. I thought all these people were my friends, but then I realized all they want is just money.”
Three years later, he suddenly disappeared. One year after this disappearance, his body was found- he was murdered by one of these people who pretended to be his friend. The murderer is allegedly (the trial’s still going), Dorice Donegan Moore. Moore had used a variety of means to get Shakespeare to give her millions. She even started a business with him that she was going to run. After it was founded and the bank account full, she withdrew $1 million and went on vacation.
In the interim between his disappearance and his body being discovered, his family at first thought he’d just become fed up with the constant stream of people begging for money, and just left to start a new life. In the end, they began to grow suspicious of Moore’s apparent attempts to make everyone think Shakespeare was still around, such as texting people from his phone (which was a major red flag because he was near illiterate), and paying people to say they’d seen him, including offering $200,000 to Shakespeare’s son to tell detectives he’d seen his father recently. She even attempted to pay someone $50,000 to say they murdered him. She was finally arrested and the body found after attempting to pay someone to move the corpse.
Investigations later revealed, completely unrelated to any of this, Moore had previously attempted to say that her car was stolen and that she was kidnapped and raped in the process. She even taped her own wrists, threw herself from someone’s car, and took a rape exam. Why did she do any of this? Because she was behind on payments for her car and it was going to get repossessed; this was her way of trying to get to keep it, by claiming it was stolen.
9) Jeffrey Dampier: Dampier won $20 million in 1996 (about $28 million today). Unlike many on this list, he actually handled things OK, though he did do the common thing of spreading his wealth around, buying various things for family and friends like houses, cars, and the like. He then founded a gourmet popcorn store, Kassie’s Gourmet Popcorn, which surprisingly was quite profitable, and on top of that, allowed him to give jobs to certain family and friends.
Nine years after winning, he was doing quite well. So what went wrong? His sister-in-law, Victoria Jackson, who he had previously been having an affair with when she was 15 and he 32 (she was also 15 when she found her father having hanged himself), called him out to her apartment. When he arrived, her boyfriend, Nathaniel Jackson, pulled a gun on him. They tied him up, drove him out of town, and then Victoria shot the 39 year old Dampier in the head. Nathaniel Jackson stated it wasn’t about getting money, “You kill the goose, then no more golden eggs.” It was about resentment over Dampier’s easy fortune and success.
10) Evelyn Adams: Defying all odds, Adams not only won the lotto once, but twice in back to back years (1985 and 1985). All total, she won $5.4 million (about $11 million today). She quickly lost all her money, mostly via giving it away and gambling, and now lives in a trailer park in poverty. She stated in an interview, “Everybody wanted my money. Everybody had their hand out. I never learned one simple word in the English language — ‘No.’ I wish I had the chance to do it all over again. I’d be much smarter about it now.”
11) Callie Rogers: Rogers was a 16 year old high school dropout living in authority care when she won a £1,875,000 (about $3 million U.S.) jackpot. Over the next few years she blew about £250,000 ($400,000 U.S.) on cocaine, shopping, and spending money on friends. She also attempted to kill herself three times, the last time by slashing her wrists. Her children were taken away from her. Further, she was arrested after police raided her and her boyfriend’s home and found several thousand dollar’s worth of cocaine, which her boyfriend was apparently dealing.
By last report in 2009, she had been off cocaine for three years, gotten her two children back, got a job as a maid, and was living with her mother. She still actually had about $40,000 of her original winnings at that point. Unlike pretty much everyone else on this list, her tale turned out surprisingly well, relatively speaking.
She said in a recent interview, “I honestly wish I’d never won the lottery money – and knowing what I know now, I should have just given it all back to them… all that money has brought me is heartache… [I] am finally becoming the woman I want to be. And it’s only after I’ve spent most of my fortune that this has finally happened.'”
12) Janite Lee: Lee won $18 million in 1993 (about $28M today). She managed to hold out for eight years, but like so many others before her, had to file for bankruptcy, at the time with reportedly just $700 left in her bank account and debts mounting.Expand for References
- The Financial Consequences of Winning the Lottery
- Myopic Risk-Seeking: The impact of narrow decision bracketing on lottery play.
- High Income Improves Evaluation of Life, But Not Emotional Well Being
- Why Lotto Winners Go Bankrupt
- Three Ways Not Winning the Lotto May Make You Wealthy
- 10 Lotto Winners Who Lost It All
- Sentence, Life Three Times
- Good Luck Gone Bad
- Unluckiest lotto winner ever
- Kearney, Melissa S. (2005b). “State Lotteries and Consumer Behavior,” Journal of Public Economics 89
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Well you know what they say
“A fool and his money are soon parted”.
They all seem to get the coke habit. Cocaine must be the universes way of telling you that you have too much money.
I just think that these people are pathetic, what an opportunity missed. So much good could’ve come out of winning those millions.
If they weren’t pathetic they wouldn’t have bought lottery tickets to begin with.
Very entertaining and educative post 🙂
Lots of bad luck following good luck; a real lot of “finance uneducated” people; and the usual idiots;
Other problems more urgent… these links are unfortunately, dead:
– The Financial Consequences of Winning the Lottery
– High Income Improves Evaluation of Life, But Not Emotional Well Being
– Good Luck Gone Bad
A “tax on the poor”….utter nonsense….people voluntarily buy lotto tickets and aren’t forced to do so by the government. Income tax is governmental theft….the federal welfare system needs to end.
We had two people called Bob C- in our department. One was high ranking, the other held a very minor position. The second one won $6,000. For a week or two after that we were distinguishing them as “Bob C- the winner” and “Bob C- the loser.”