How Winning the Lottery Affects Your Life

Whether they win a small prize or a major jackpot, lottery winners are often ill-prepared for the impact of sudden wealth. The best way to prepare is to have a crack team of helpers: debt-management specialists, a financial planner, an investment adviser and a therapist. But many players also need a dose of personal finance 101, and a reminder that winning the lottery is no guarantee of happiness or a better life.

The most common advice is to spend less than you can afford, save for retirement and build up an emergency fund. These steps are important, but they do not address the psychological impact of the big win, or the fact that it will likely take a while to adjust to a new lifestyle. Many lottery winners have found their newfound wealth can make them feel depressed, and many struggle to maintain a balanced work-life schedule. Others have suffered from addiction, and some even committed suicide. The good news is that these problems can be managed with careful planning, good counselling and an appropriate level of self-discipline.

In the United States, 44 states and the District of Columbia run lotteries, but Alabama, Alaska, Hawaii, Mississippi, Utah and Nevada do not. There are a number of reasons for this, including religious concerns, the belief that state government already benefits from gambling and does not need a separate revenue source, and the desire to avoid the stigma of illegal gambling.

During the immediate post-World War II period, when many states adopted lotteries, there was also a sense that they could use these additional revenues to expand their social safety net without increasing taxes on the middle class or working class. But studies show that the lottery’s popularity is not linked to a state’s fiscal health. In fact, as Clotfelter and Cook point out, lotteries have been successful in winning public approval even when states’ overall tax rates are low.

Lotteries are designed to sell tickets, so they rely on the idea that people will be persuaded to spend money that might otherwise go unspended. But the reality is that this persuasion works only in very specific circumstances, and in general, lotteries are at cross-purposes with public policy.

In a typical lottery, participants purchase a ticket for a drawing that may be weeks or months away. But innovations in the 1970s allowed lotteries to create instant games, wherein a winner is selected immediately after purchasing a ticket. These games have higher prize amounts and lower odds of winning, but their revenue streams are much smaller than those of traditional lotteries. To sustain revenues, lotteries introduce a steady stream of new games to attract and keep customers. They also increase the size of jackpots, which can generate a huge windfall of free publicity and draw in media attention. But the increased jackpots have a downside, too: they make it harder for players to understand and appreciate the actual odds of winning the top prize.