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This article appeared at the origin on The Conversation, and is republished under a Creative Commons license.
A winner eventually won the $ 1.537 billion jackpot. Research suggests that the unidentified winner may not be so lucky.
The jackpot reached this huge amount after the 25 draws held since the end of July did not win. This makes it the second largest lottery lottery the world has ever seen. The record was reached in 2016, when the rival game, Powerball, reached $ 1.6 billion. The Mega Millions was previously estimated at $ 1.6 billion as well, but dropped after calculating the number of tickets.
The chances of winning are very low, about 1 in 303 million. You are about 400 times more likely to be struck by lightning
The chances of winning are very low, about 1 in 303 million. You are about 400 times more likely to be hit by lightning. If every adult in the United States bought a single ticket, each with a different number, there would still be a good chance – about 7% – that no winner will come out in a given draw and that the pot would become even larger. .
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But once a winner is declared and claims the prize, a more interesting question arises: what happens to all this money and the lucky ticket holder? As research by myself and others shows, this is often not what you expected.
A price smaller than it seems
The first thing to keep in mind is that even if the jackpot is very attractive, the real gain will be much lower.
If someone claims it, the winner will not receive $ 1.537 billion in a big check the next day. As a single winner, he can either choose a lump sum payment of about $ 878 million, or receive annual payments worth $ 1.537 billion, the amount of which increases gradually over 30 years.
After that, the tax collector must take a big bite. If the winner comes from a state without a lottery tax like Florida or Texas and chooses a lump sum, the federal government will withdraw about $ 211 million, leaving $ 667 million. The winning ticket would have been bought in South Carolina, which would represent 7% of the total, which would leave about 606 million dollars to the holder.
This jackpot starts to look a lot smaller, even though there is still a lot of change.
Where are the falls
The conventional wisdom is that winning the lottery will change your life. While this is probably always true, research suggests that it's not always as you would like.
Economists Guido Imbens and Bruce Sacerdote and statistician Donald Rubin showed in a 2001 article that people tend to spend unexpected amounts. Looking at the lottery winners about 10 years after winning, they have saved only 16 cents per dollar earned.
The average person in their 20s, 30s or 40s who had inherited or donated money quickly lost half of their money due to poor expenses or investments.
In my own research, I found that the average person in their twenties, thirties or forties who had received an inheritance or a major financial gift quickly lost half of their money because of expenses or expenses. mediocre investments.
And other studies have shown that winning the lottery has not generally helped people in financial distress to escape their problems and has only postpone the inevitable bankruptcy. One of them found that one-third of lottery winners go bankrupt.
It's not easy to ruin everything
How could a lottery winner spend hundreds of millions of dollars so quickly? This is not easy.
Demographic research on the characteristics of lottery players shows that lottery games peak in the 30-39 age group and fall with age. And the average person in the United States lives up to 79 years old.
The winner should spend about $ 55,000 a day to spend everything – even more if you take into account the accumulated interest while in the bank.
This means that if the winner is in her thirties, she would be about 45 to spend the $ 900 million after-tax lump sum, for example. This means that she should spend just under $ 20 million a year, or about $ 55,000 a day, to spend all her money – even more if you take into account the interest accrued while you deposit them at the bank.
In addition, ruining everything means that the winner has no assets to claim. If he uses this money to buy luxury homes, paintings by Banksy, Ferraris and Aston Martins, his net worth will not change and he could retire with his fortune intact, provided the investments retain their value. or increase.
Blowing in the money, which leads to bankruptcy and low savings, means that the winner has nothing to show his expenses, apart from a good time.
Riches in rags
And that's basically what a man named Huntington Hartford did.
Hartford, who lived from 1911 to 2008, was the heir to the fortune of the Great Atlantic & Pacific Tea Company. This company, which began just prior to the Civil War, is better known as the A & P supermarket chain. A & P was the first grocery store in the United States. , from the First World War to the 1960s, was what Walmart was for today's American buyers.
Hartford had inherited about $ 90 million at the age of 12. After adjusting for inflation, he had received more than $ 1.3 billion after tax. Yet, Huntington declared bankruptcy in New York in 1992, about 70 years after receiving one of the largest fortunes in the world.
Hartford had the opposite Midas touch. He lost millions by buying real estate, creating an art museum and sponsoring theaters and shows. He combined weak business skills with an exceptionally sumptuous lifestyle. After declaring bankruptcy, he lived in solitary confinement with a girl in the Bahamas until his death.
May the odds always be in your favor
The story of Hartford's life, coupled with academic research, shows that there is not always a happy ending to cash. It is easier to waste that money than it seems.
If you have played and have not won, I wish you good luck next time. If you have played and won, I wish you luck.
Nevertheless, a key lesson, whether you play or not, is that when you win money or win the lottery, plan ahead and resist the all – too – human temptation to spend all the money. ;money.
Jay L. Zagorsky is an associate professor at Boston University.
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