May 17, 2018

Most quick millionaires go bankrupt soon

Sudden windfalls can be exhilarating; it must be quite a trip to see your account balance that has a number with so many zeros. But hold on, research shows that lottery winners go broke in three to five years. It took Sushil Kumar, the Rs5-crore-Kaun Banega Crorepati winner in 2011, just a few years to burn through the cash. From a person who earned Rs6,000 a month pre-KBC, to having a post-tax Rs3.46 crore in the bank, to selling milk from the four cows he bought and some fixed deposits, took just three years.

While anecdotes are aplenty on winners of sudden gain losing it all and going back to where they were or worse, a 2011 paper in the Review of Economics and Statistics gives academic heft to these stories. The paper compares Florida Lottery winners who won $50,000 to $150,000 to small winners, and shows that such transfers only postpone bankruptcy rather than prevent it. Economist Jay L. Zagorsky at the Ohio State University writes that “research shows lottery winners and people getting windfalls spend or blow through much of the money”.


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