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Study: Neighbors of lottery winners are more likely to go bankrupt

May 29, 2018, 7:47 am

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After the Big WinAfter the Big Win: Study: Neighbors of lottery winners are more likely to go bankruptRating:

As if you needed proof that trying to keep up with the Joneses isn't a good idea, here it is: Close neighbors of lottery winners in Canada tended to spend more on conspicuous goods, put more money into speculative investments such as stocks, borrow more money — and eventually declare bankruptcy.

"The larger the dollar magnitude of a lottery prize of one individual in a very small neighborhood, the more subsequent bankruptcies there will be from other individuals in that neighborhood," says the latest version of a working paper from the Federal Reserve Bank of Philadelphia by Sumit Agarwal of Georgetown University, Vyacheslav Mikhed of the Philadelphia Fed, and Barry Scholnick of the University of Alberta. It's titled: "Does the Relative Income of Peers Cause Financial Distress? Evidence from Lottery Winners and Neighboring Bankruptcies."

An earlier version of their paper got a flurry of publicity in 2016 by presenting evidence from bankruptcy filings that neighbors were trying to keep up with the lottery winner in their midst. A telltale sign was that they raised spending on things that everyone in the neighborhood could see, such as cars, but not on indoor items like furniture. 

The new version adds some important insights, co-author Mikhed explained in an email. One is that neighbors who filed for bankruptcy tended to have more of their assets in high-risk investments such as stocks vs. low-risk ones like insurance and cash. That's consistent with the theory that they were hoping to make a killing in the market and even things up with the lottery winner. Another new finding: Neighbors of lottery winners tended to borrow more, compared with Canadians who weren't neighbors of lottery winners. 

The researchers focused on small lottery winnings, ranging from C$1,000 to C$150,000 (roughly $800 to $120,000). One reason for the focus on small winners was that winners of bigger jackpots tended to move out of their neighborhoods. A second was that winners of small prizes were more likely to keep their good luck a secret. The researchers theorized that people might not amp up their own spending so much if they knew that a lottery prize was the reason for their neighbor's sudden prosperity.

The economists collected data on 7,337 lottery prizes from an unnamed Canadian province, dating from 2004 to 2014. They narrowed their search to the effects on neighbors within areas that share six-digit postal codes, which have a median of just 13 households. They found that a prize equal to the median annual income (C$29,000) tended to raise the bankruptcy rate of the neighbors by 6.6 percent.

One heartening sign: There was no evidence that the people who filed for bankruptcy were especially likely to list gambling as a cause of their financial distress. That indicates that they weren't superstitiously buying more lottery tickets in hopes that the neighbor's good luck would rub off on them.

Previous research had shown that neighbors of lottery winners spent more on conspicuous consumption. Theoretically, though, they could have done so in ways that didn't jeopardize their financial health — say, by working more to increase their incomes. The new study shows that neighbors — some of them, anyway — did indeed imperil their financial health to keep up with the Joneses.

Bloomberg

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8 comments. Last comment 4 years ago by JADELottery.
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Raven62's avatar - binary
25
New Jersey
United States
Member #17842
June 28, 2005
155294 Posts
Offline

Additional Discussion can be found here:

https://www.lotterypost.com/thread/317008

A mind once stretched by a new idea never returns to its original dimensions!

Catch-22: A dilemma or difficult circumstance from which there is no escape because of mutually conflicting or dependent conditions.

Corruptissima re publica plurimae leges: When the republic is at its most corrupt the laws are most numerous.

The best way to learn is to never stop being a student!

    Avatar
    Simpsonville
    United States
    Member #163182
    January 22, 2015
    2875 Posts
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    Maybe what I researched was old, but it basically said in Canada you cannot remain anonymous, however certain situations may warrant an anonymous win, though not done very frequently.  The rules vary slightly in different Canadian Provinces.  The one case I found was a couple won 27 million CD and they stayed anonymous.

    So your nosy non-winner neighbors cannot keep up with the Jones'.

     

    Enlighten me LP posters on current regulations on remaining anonymous in Canada.  If the Caesars Windsor strike is over with by late June will be playing there.

      Avatar
      * In hot pursuit of $ *
      White Shores- California
      United States
      Member #136471
      December 12, 2012
      6799 Posts
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      All the more reasons to keep your mouth shut, should you be a jackpot winner. Do not contribute to your neighbors, whom you may hate, like or love, from falling on their swords.

       

      * Voice of Reason *

       * Voice of Reason *   

      * People who say it cannot be done should not interrupt those who are doing it- George Bernard Shaw.

        Coin Toss's avatar - shape barbed.jpg
        100
        Zeta Reticuli Star System
        United States
        Member #30469
        January 17, 2006
        11654 Posts
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        Additional Discussion can be found here:

        https://www.lotterypost.com/thread/317008

        Good memory Raven62 thanks, heck I almost forgot about that.

        Such articles speak volumes about human nature.

        Those who run the lotteries love it when players look for consistency in something that's designed not to have any. So many systems, so many theories, so few jackpot winners. 

        Lep

        There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

          Raven62's avatar - binary
          25
          New Jersey
          United States
          Member #17842
          June 28, 2005
          155294 Posts
          Offline

          Good memory Raven62 thanks, heck I almost forgot about that.

          Such articles speak volumes about human nature.

          I Agree!

          A mind once stretched by a new idea never returns to its original dimensions!

          Catch-22: A dilemma or difficult circumstance from which there is no escape because of mutually conflicting or dependent conditions.

          Corruptissima re publica plurimae leges: When the republic is at its most corrupt the laws are most numerous.

          The best way to learn is to never stop being a student!

            music*'s avatar - DiscoBallGlowing
            Fresno, California
            United States
            Member #157849
            August 2, 2014
            3959 Posts
            Offline

            I am surprised to learn that a lottery win affects both middle class as well as upper-class neighbors.

             This news is a good argument for allowing all lottery winners to claim anonymously. The less your neighbors know about your sudden wealth the better for all. This will be one step in protecting your neighbor as well as yourself. 

             Lottery winners must live somewhere so moving next to High Net Worth families will be the choice.

             These articles are also another voice to taking the thirty-year Annuity. If you can live on a budget. You will not upset the apple cart in your new neighborhood.

             Here is one example of a couple who won a major jackpot and moved to South Florida.               Steven and Christine White won a PowerBall jackpot worth $100,000,000.00 in Pennsylvania.    They tried living in their old neighborhood but failed due to many reasons. The did not blend into there neighborhood.

              They moved to Florida and lived in a wealthy community. They did choose the lump sum.        Bed

             "We are all in this together!" 

              KY Floyd's avatar - sunflowers avatar.jpg
              NY
              United States
              Member #23834
              October 16, 2005
              4558 Posts
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              "So your nosy non-winner neighbors cannot keep up with the Jones'."

              If you park a $50,000 boat in your driveway or they see you carrying 3 new 75" TVs into the house (maybe after unloading them from your new car?) they don't need to know you won the lottery to try to keep up. All they've got to do is decide they need a new boat/TV/car too.

               

              IIRC the 2016 report isn't the original one, either. There may be a comment in the linked thread, but I think the idea goes back at least 10 years or more.

                Avatar

                United States
                Member #21
                December 7, 2001
                4530 Posts
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                Good to know.

                .