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What lottery winners lose out on because of human behavior

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What lottery winners lose out on because of human behavior

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Research shows that lottery winnings—and other major cash windfalls—can make life more complicated than you might expect. Converting it into a lifetime of financial stability takes some careful planning (and maybe some help).

The largest lottery ever won in South Africa to date was R232 million, a truly enormous amount for any individual to suddenly have in the bank. What happens when people who spend R2.50 on something with a 50% expected outcome end up with millions? Behavioral research indicates that, in addition to happiness, the individual may want to approach their newfound wealth as a potential source of danger.

What do we know about winning the lottery and financial wellness?

Well, quite a lot, in fact. And the short of it is that unexpectedly gaining any large sum of money (whether lottery winnings or an inheritance) can lead to new unfamiliar problems. Obviously, winning the lottery has the benefit of being free from the worries and stresses that come with not having enough money. However, the research indicates that gaining so much money, so quickly, doesn’t necessarily work out in the long run.

Here are the facts:

  • Without a plan, lottery winners will likely shift to a new higher standard of living quickly—i.e. lifestyle creep. Once they adapt to a bigger house and better cars, dissatisfaction can set in, and they’ll revert to a previous level of happiness and well-being.
  • There are more ways to spend money than ways which will make you happy. When money is cheap to us, we often throw it at problems, even when those problems aren’t solvable with money. As a result, non-monetary problems suffer.
  • As you move up social circles, your reference point changes to be that of your neighbor’s. So a Mercedes can start to become normal rather than something you’re particularly proud of.
  • This change of circumstance and social groups likely comes with new stresses and problems, ones which lottery winners may have little experience with.

How can lottery winners help ensure that they live happily ever after?

Dealing with a windfall of cash takes more planning and intentionality than you might expect. Here are the principles we financial professionals would suggest if you find yourself with a windfall of cash:

Plan an upward path.

One of the best insights we’ve had is how quickly we adapt to changes in standards of living. Simple economics might say that we’d be indifferent between spending R10 million per year over 10 years, than starting from R1 million and working our way up to R30 million. However, because we adapt quickly, it’s better to be constantly increasing your available income. The worst thing you can do is spend most of it in the first year – then every year seems worse than the last, rather than better.

Spend more tomorrow.

Spend as little as possible at first: pay off debts, splurge a little on a party for family, friends etc, and take a holiday. But the more you spend up front, the less you have to look forward to later. Saving, waiting, looking forward to, and having a change of pace are what makes people happier.

Keep working—at least at first.

Think very carefully about quitting your job – you need a reason to get up every day. True, negative feedback from your boss will seem less pressing, but it still improves you and your skills. If you do quit, have a plan for what you’ll do, something to challenge yourself and achieve. Make a new job for yourself, even if it’s joining a charity organisation!



PLUS, we'll send you our Zonotho Personal Finance Starter pack to help you take your financial prowess to the next level!


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Sonwabile is a Regional Wealth Manager at Inkunzi Wealth. He regularly comments about money-related matters on various newspapers, radio and television. Sonwabile runs a popular Facebook Page (Ask Sonwabile) that tackles individual questions about money and wealth.

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