Keeping up with the Joneses may have even more disastrous and far-reaching consequences than you thought!
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The impact of lottery winnings on neighbors
We’ve all heard stories about someone who wins the big jackpot and then winds up broke in a few short years. But did you know that can happen to the people who live around the winner too?
That’s the finding of a new working paper from the Federal Reserve Bank of Philadelphia. The researchers behind the paper looked at lottery prizes and bankruptcy filings over 10 years in an anonymous Canadian province. Then they sorted that data down to six-digit postal codes with an average of only 13 households.
What they found was pretty amazing: Every $1,000 increase in the lottery prize winning correlated to a 2.4% increase in bankruptcy filings by the winner’s neighbors over the following years!
It seems that close friends and neighbors who saw a winner living it up felt compelled to buy flashy new vehicles they couldn’t afford or put money into glitzy home upgrades that they didn’t have. Talk about keeping up with the Joneses! This finding could really make you rethink living near a lottery winner!
Tips for dealing with a windfall
I know what you’re thinking now: ‘Wow, winning millions of dollars. What a nice problem to have. I’ll just move if I win so I don’t cause my neighbors any hardship!’ That may solve the problem for your neighbors, but there are some additional pitfalls you’ve still got to watch out for.
If you ever come into a large inheritance or sell a business and get a pile of money, restraint is key. I’ve long told people in this situation to blow 10% of it however you want. But the other 90% you treat as a nest egg to nurture.
It’s easy to say, but so hard for people to do. As for me, if I won that kind of money, I would change nothing. I would still get up and come to work every day. I would just think about what charity I could give it to! But that’s just me.
A final word of advice for future lottery winners: Never take the lump sum payout. You’re better off taking the payout over years as a method of forced budgeting. If you worry your heirs won’t get all the money you have coming to you, buy a term life insurance policy that would pay them for what you would not receive if you die prematurely.
Remember, most of us do better with basic allowances than a huge sum of money right then and there!
Finally, you don’t have to win the lottery or get an inheritance to come into extra cash. See some free and easy ways to search for missing money in your name.