Imagine tomorrow that 100 random people woke up with an additional $10 million in their bank account. What would happen next? Do you think the majority would blow the money within a few years? Or would they have enough self-control to make it last?
Despite what you may have heard, the research suggests that most of them would do okay financially. As CNBC reported in 2018, “The CFP Board of Standards says nearly one-third of lottery winners eventually declare bankruptcy.” This is concerning in its own right, but it also implies that 67% of lottery winners do not declare bankruptcy after a big win.
But the thing that bothers me the most about this is just how high the bankruptcy rate is for lottery winners. From 2020-2024, there were roughly 2.2 million non-business bankruptcy filings in the United States. And with over 250 million adults in the U.S., this means that the five-year bankruptcy rate is less than 1%.
Yet, lottery winners, somehow, file bankruptcy at a rate over 30x higher than the general population! It’s absurd. Even if we assume that the CFP data was off by a considerable margin, we are talking about a 10x+ increase in the overall bankruptcy rate simply by giving people more money.
We should expect lottery winners to file bankruptcy at the same rate (or lower) than everyone else, given the additional financial resources. But this misses a deeper truth: building wealth slowly, methodically, and with great effort is what makes it last.
The problem with lottery winners is that they didn’t have to earn their money, so they don’t value it like someone who did. It reminds me of a passage I recently read in Jurassic Park (the book that inspired the movie) by Michael Crichton:
Most kinds of power require a substantial sacrifice by whoever wants the power. There is an apprenticeship, a discipline lasting many years. Whatever kind of power you want. President of the company. Black belt in karate. Spiritual guru. Whatever it is you seek, you have to put in the time, the practice, the effort. You must give up a lot to get it. It has to be very important to you. And once you have attained it, it’s your power. It can’t be given away: it resides in you. It is literally the result of your discipline.
Now what is interesting about this process is that, by the time someone has acquired the ability to kill with his bare hands, he has also matured to the point where he won’t use it unwisely. So that kind of power has a built-in control. The discipline of getting the power changes you so that you won’t abuse it.
But scientific power is like inherited wealth: attained without discipline. You read what others have done, and you take the next step. You can do it very young. You can make progress very fast. There is no discipline lasting many decades. There is no mastery: old scientists are ignored. There is no humility before nature. There is only a get-rich-quick, make-a-name-for-yourself-fast philosophy.
This is why many lottery winners run into financial trouble as well. They never made the sacrifices necessary to create what they have, so they don’t understand its value. As a result, it’s only a matter of time before they lose it all.
Some research supports this notion as well. For example, one paper found that mid-tier prize lottery winners (those winning $50k-$150k) were no less likely to file bankruptcy over the next 3-5 years than smaller winners (the researchers stated:
The results indicate that giving $50,000 to $150,000 to people only postpones bankruptcy.
Unfortunately, old habits die hard.
While it pains me to admit, there’s a growing body of evidence that money by itself won’t solve people’s financial problems. Kelsey Piper had a great post recently summarizing all the universal basic income studies and concluded that the results weren’t what many had hoped for.
The thing that stands out the most in the basic income research was how few people used the additional money to improve their financial situation. You would think that, if someone got extra cash every month, they would save it to try and get ahead. But that’s not what the researchers found. In fact, most people who got UBI payments ended up working fewer hours, preferring additional leisure time over increased financial security.
This result partially explains why lottery winners are far more likely to go bankrupt than the general population—they don’t use their good luck to get ahead. Unfortunately, there is no pill or book or blog post that can make people better themselves financially. They have to want it on their own.
This is one of the hardest things I’ve had to learn as an adult: you can’t make people change. You may have a friend or family member that doesn’t make the best financial decisions, but that’s on them to fix, not you. Unsolicited advice won’t help them.
They have to understand that every paycheck, every investment, every dollar is a step in building financial discipline. Each one is a step toward genuine progress.
That’s where proof of wealth really comes from. It’s not about showing others what you’ve accumulated, but understanding the value of money in your own life. It comes from decades of effort, from recognizing what you are building for yourself and your loved ones.
Today, people are wealthier than ever before—yet not all have learned this lesson. But, in time, we will see who has.
Thank you for reading.
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This is post 466. Any code I have related to this post can be found here with the same numbering: https://github.com/nmaggiulli/of-dollars-and-data
