SPOKANE, Wash. — The $1.6 billion Powerball jackpot is attracting attention and drawing players. Americans everywhere are paying a few dollars for a chance to become a billionaire.
But more often than not, lottery winners have a losing track record of holding on to their winnings. About 70 percent lose it all within five years, no matter how lucky they are.
“They haven’t really practiced money management,” said Robin Henagger, assistant professor of economics and finance at Whitworth University. Due to a lack of controlled spending practices, people often spend money at rates that their winnings cannot keep up with.
This is what is known as the “Sudden Rich Syndrome”.
“This sudden wealth syndrome is what brings them back; they’re not better off in the long run with their winnings because they haven’t learned how to manage their money,” Henagar said.
It’s common for those who come across lump sums of cash to prioritize new exciting purchases over necessary ones, such as paying off debt.
This can lead to a slippery slope of overspending. And once the news of your win reaches your friends and family, it can lead to additional financial hardship.
“They become targets for people in the family asking them for money, which can damage the relationship.”
Very few states allow winners to remain anonymous, and Washington is not one of them.
But there are steps you can take to plan ahead.
“The first thing I would say is find a financial planner,” Henager said. A fiduciary financial planner to be specific. “They have a duty to look out for your own interests, not theirs. They have a code of ethics to follow.”
In Washington, the winners have 60 days to claim their prize, which allows some time to develop a plan.
The only question that remains is, do you accept payment in cash? Or take annuity payments.
For context, the cash payout will be approximately $782 million before taxes.
In annuity payments, you will receive approximately $50 million per year for 30 years.
Henager recommends asking your financial advisor.
READ: Powerball jackpot up to $1.6 billion, a new lottery record
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