Author Topic: Lottery winner - on the fast track back to bankruptcy  (Read 9970 times)

tarantoga

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Lottery winner - on the fast track back to bankruptcy
« on: January 26, 2013, 10:04:39 PM »
I was reading a feel-good story about a lottery winner who was down on his luck when he hit the jackpot - but I could only facepalm when reading this:
http://www.nydailynews.com/news/national/laid-worker-wins-1-million-lottery-article-1.1241071

The best quotes:
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Then they went to a car lot and bought a pair of brand new Jeeps a Grand Cherokee for her, a Rubicon for him.
"It was overwhelming to go to a car lot and be able to pick a car, any car, that you wanted," Misti Gunn said.

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They deposited the $670,000 their winnings after taxes in a bank, then wrote a check for 10 percent of that amount as their regular tithe payment to their church.

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Gunn said he plans to use the rest of the money to start his own business developing ideas he has long had for software and renewable energy.
"It's going to change my life," Misti Gunn said, fighting back tears. "Living off nothing is just very hard."

Sorry Misti - if you keep going like that you'll be back to where you started pretty soon.

grantmeaname

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #1 on: January 27, 2013, 08:01:32 AM »
If she and everyone like her didn't by lottery tickets, they'd be living off of slightly more than nothing. Just sayin'.

TwoWheels

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #2 on: January 27, 2013, 11:50:09 AM »
The lottery is pretty much the pinnacle of antimustachianism. I will never buy a lottery ticket in my life.

c

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #3 on: January 27, 2013, 01:13:57 PM »
Yeah, that's not going to end well.

$16 seems like a lot of money to spend on the lottery when you're essentially broke.

I play it occasionally with people at work.

strider3700

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #4 on: January 27, 2013, 07:44:23 PM »
A guy in my province recently won either 50 or 25 million.  He was giving big amounts of it away to various people in town that he knew.  Writing checks for pretty much everyone.  That's great and all but if he had any sense at all he could take 10 million stick it in a trust and have them pay out the yearly interest to the town for various feel good projects forever.   It's a small town so an extra 500,000/year would go a long way.   Instead he's likely to run dry in the not too distant future and the town will have nothing. 

I will admit I like playing the lottery.  Yes I'm able to do the math.  I also have the funds to do it.    It gives me a chance to dream about what the ubber wealthy must live like.  If I won 50m I'm pretty sure I could live the life of my dreams on the interest alone...
« Last Edit: January 27, 2013, 09:34:09 PM by strider3700 »

gmaxwell

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #5 on: January 27, 2013, 08:59:18 PM »
For the mathematically inclined, apparently it's common for lotteries to be bad bets even when their expected return is positive, due to the risk of ruin: See this analysis.

kolorado

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #6 on: January 28, 2013, 09:22:14 AM »
I don't think giving 10% to your church is a fast track to bankruptcy, otherwise millions of people all over the world who share that belief would all be bankrupt as well.
I'm on board with the new cars being very foolish. They probably dropped $75K on those when a two used ones would have been closer to $20K and still have been a big deal. As it is they spent more than 10% on depreciating vanity items. If they were living off of nothing before, just being able to walk into a dealership and write a $10K check should have been overwhelming enough. :/
The plans to spend the rest of the money on a new house and business venture were the most worrisome part of the article. Before the donation and vehicle purchase, those winnings would have brought in an income of over $40K a year. They actually could have bought one of those cars and made payments on it with an income like that without ever touching the balance.
Me thinks they were bad off before because they simply don't understand what "savings" means. And I agree that that spells certain doom for their future. It's sad. Hopefully the 10% they gave to the church will do some good(perhaps a Dave Ramsey course?) so the win wasn't a complete waste.

Tyler

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #7 on: January 28, 2013, 10:09:10 AM »
IMO, donating 10% to the church/charity is something to be admired, not admonished.  It sounds like they were doing that long before they won the lottery - good for them.  And starting a business isn't a bad idea provided they know what they're getting into (lots of mustachians save so that they can have the financial freedom to try this). 

Now the expensive cars could be a different story.  I imagine that's the most common first purchase for lottery winners. 
« Last Edit: January 28, 2013, 10:41:54 AM by Tyler »

The Bearded Bank Builder

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #8 on: January 28, 2013, 03:01:06 PM »
If I won 50m I'm pretty sure I could live the life of my dreams on the interest alone...

I would hope so! Even if it was only making 5% that would be $2.5 mil/year

FiveSigmas

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #9 on: February 04, 2013, 10:35:56 PM »
For the mathematically inclined, apparently it's common for lotteries to be bad bets even when their expected return is positive, due to the risk of ruin: See this analysis.

Thanks for the link! I'd never heard of the Kelly Criterion before. In addition to the interesting math, it turns out there's quite a story behind the formula, involving the phone company, mob bosses, Las Vegas, and Claude Shannon (father of "information theory"). I just checked out "Fortune's Formula" by William Poundstone from the Library, and so far it's quite entertaining.

dragoncar

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #10 on: February 05, 2013, 11:00:19 AM »
Here's my take on the lotto -- I play because $10 million is essentially infinite money to me - it would provide more annual income than I would ever spend.  This skews the EV into positive territory. 

Moreover, $2600 in the bank at 4% SWR allows me to play twice a week forever.  I save this amount in about a week.  I have and will do much stupider things with my money than play the lotto.  Of course, I see it as an entertainment expense.

Now, if I'm broke, then playing the lotto is a bad idea.

lithy

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #11 on: September 25, 2013, 05:21:02 AM »
I know this is an old thread, but I figured it was appropriate to bump it up since we have a new contender.

"$4 million ... which, as he put it, 'ain’t sh-t in today’s economy.'"

usnews.nbcnews.com/_news/2013/09/25/20663854-the-drama-is-nonstop-powerball-winner-wild-willie-wants-his-old-life-back

There is just too much to try to highlight in this piece, but I'll pull out my favorite part.

These:

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She and Willie paid cash for new vehicles: a black GMC pick-up for him, a shiny purple Chrysler for her.

Then they helped family, funding a house for one kid, a master’s degree for another.

He also did something big for himself, making one of his press conference pledges come true by buying a cabin on 15 acres of land, about 30 minutes away.

Followed by this:

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“I get cheap attacks,” he said. “You never heard of a cheap attack? It’s when you look at something you need, and think: Hell, I can’t afford that.”

randymarsh

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #12 on: September 25, 2013, 06:36:34 AM »
From lithy's article:

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purses are likely to grow still larger as states experiment with allowing people to buy tickets with smartphones and credit cards, the hoped-for tools of perpetual gaming.

Emphasis mine.

GuitarStv

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #13 on: September 25, 2013, 10:03:23 AM »
That's some evil genius shit right there . . . allow people to fund their misguided dream of getting out of debt with more debt.

Hedge_87

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #14 on: September 25, 2013, 10:22:43 AM »
I know the lottery is a fools game. However occasianally ill throw some money in the office pool at work. I do this mainly cause it would royaly suck if every body else was rich over night and I was stuck working for a few more years. Having said that it is kind of fun to dream once in a while. Think of all the good you could do in this world if you won 400 million or so. Especially being mustachian you wouldn't spend it all on stupid expensive toys.

Spork

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #15 on: September 25, 2013, 10:53:48 AM »
That's some evil genius shit right there . . . allow people to fund their misguided dream of getting out of debt with more debt.

What?  That doesn't work?  Please notify the federal government immediately!

Albert

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #16 on: September 25, 2013, 11:10:46 AM »
One hears these stories about lottery winers being broke again in 10 years, divorced, alcoholics even murdered quite regularly. I wonder if there are also some who managed to use the money to permanently move to the "upper class". Probably there are, but newspapers don't write about them...

I don't play, but sometimes I dream how it would be to win an enormous amount of money. A million wouldn't do much for me (I'd invest almost all of it to reach FI), but 10 or 100 would be fun to spend. I'd buy one of those medieval castles for sure. :)

JoshuaSpodek

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #17 on: September 25, 2013, 12:49:47 PM »
Here's my take on the lotto -- I play because $10 million is essentially infinite money to me - it would provide more annual income than I would ever spend.  This skews the EV into positive territory

Moreover, $2600 in the bank at 4% SWR allows me to play twice a week forever.  I save this amount in about a week.  I have and will do much stupider things with my money than play the lotto.  Of course, I see it as an entertainment expense.

Now, if I'm broke, then playing the lotto is a bad idea.

The lottery's expected value is negative except under rare circumstances.

Rare enough that you can safely presume its expected value is always negative.
« Last Edit: September 25, 2013, 12:53:46 PM by JoshuaSpodek »

JoshuaSpodek

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #18 on: September 25, 2013, 12:57:29 PM »
Here's a way to live like rich people and get the same thrill as playing the lottery:

Take fifty-dollar bill.

Go to the top of the tallest building around.

Tear off little pieces of the bill and let them go into the breeze, watching them fly away.

Continue until the bill is gone.

There, now you've lived like a rich person.

For extra thrills, use a hundred-dollar bill or choose a windier day.

For more modest thrills, use a one-dollar bill.

No Name Guy

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #19 on: September 27, 2013, 12:50:02 PM »
Here's another one likely destined for the poor house.

http://finance.yahoo.com/news/lottery-winner-sues-advisors-for-poor-policies-135928218.html

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Kevyn Ogawa won the lottery back in 2009, taking a lump-sum cash payout and netting $70 million, after taxes. Shortly thereafter he began investing with two financial advisors, who were also attorneys and insurance agents. They convinced Ogawa to buy four [life insurance] policies from four companies, telling him he could "earn $50 million by the time he was 50 years old," the complaint states. Ogawa says the agents made $1million in commissions from the sales, exploiting the fact that he "knew nothing about life insurance."

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Kevyn, a young unmarried man with no children, no siblings and only one living parent, had no need for so much life insurance. Kevyn stood no chance to benefit from the insurance financially since he was not named as a beneficiary of the trust that owned the policies.

Simple financial advice (besides ALWAYS spending less than you earn):  If you don't understand it, don't invest in it, period.

Albert

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #20 on: September 27, 2013, 12:54:48 PM »
If you suddenly won so much money why bother with investing at all? I'd probably stick it in savings accounts in several different banks and live off withdrawing it slowly. Not efficient of course and barely beating inflation, but with 70 millions who cares????

JoshuaSpodek

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Re: Lottery winner - on the fast track back to bankruptcy
« Reply #21 on: September 29, 2013, 05:17:24 PM »
Here's another one likely destined for the poor house.

http://finance.yahoo.com/news/lottery-winner-sues-advisors-for-poor-policies-135928218.html

Quote
Kevyn Ogawa won the lottery back in 2009, taking a lump-sum cash payout and netting $70 million, after taxes. Shortly thereafter he began investing with two financial advisors, who were also attorneys and insurance agents. They convinced Ogawa to buy four [life insurance] policies from four companies, telling him he could "earn $50 million by the time he was 50 years old," the complaint states. Ogawa says the agents made $1million in commissions from the sales, exploiting the fact that he "knew nothing about life insurance."

Quote
Kevyn, a young unmarried man with no children, no siblings and only one living parent, had no need for so much life insurance. Kevyn stood no chance to benefit from the insurance financially since he was not named as a beneficiary of the trust that owned the policies.

Simple financial advice (besides ALWAYS spending less than you earn):  If you don't understand it, don't invest in it, period.

Or, if you can't figure out who in the room is the biggest fool, it's probably you. And you and your money will soon be parted.