An article in the Richmond Register compares recipients of bailout money to lottery winners, who go broke in 5 years or less. Some excerpts:
I stumbled upon a fascinating academic article called, “The Ticket to Easy Street? The Financial Consequences of Winning the Lottery.”
It was written by three economics professors, Scott Hankins from the University of Kentucky, Paige Marta Skiba from Vanderbilt University, and Mark Hoekstra from the University of Pittsburgh.
The professors were not just looking to learn the habits of lottery winners. They were searching for the answer to a much larger question: “Whether a bailout will have a permanent impact or whether it will merely postpone financial pain....”
In the first couple of years after winning a jackpot, people who won small amounts were more likely to file [bankruptcy] than were people who won larger amounts. That makes sense. Someone with a large amount of money can initially weather a bad time or keep creditors at bay.
After three years, large winners are more like likely to file bankruptcy than small winners. Also, people who received large sums did not use that money to pay down debt or increase assets.
Winning the lottery did not help people increase their net worth. They needed to have set goals and an understanding of finance to make their lives better. It appears that they did not have those fundamental tools.
Giving someone a lump sum does not make financial problems go away....
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