As details emerge about America's newest millionaire, a 44-year-old immigrant from the Dominican Republic who won an astounding $338 million Powerball lottery jackpot, financial experts warn that a few missteps can take lottery winners from rags to riches, and back to rags again, in no time.
The National Endowment for Financial Education points to research that estimates 70 per cent of people who unexpectedly come into large sums of money will lose it within seven years.
“Many people have unrealistic expectations about what they can do with their money,” Judy Haselton, a financial advisor with the Sudden Money Institute, told CTV’s Canada AM on Tuesday. “People believe that money will solve all their problems, but in fact it doesn’t address all of them.”
Haselton advises lottery winners to immediately spend some time in a “decision-free zone” to think about what they’d like to achieve with their winnings.
Most importantly, she says it’s important not to make any immediate financial commitments.
“They need to work with a financial advisor who’s trained in transition to help them understand that experience, address how they’re feeling and then make decisions over time on how to use their money,” Haselton said.
Depending on the amount of money and an individual’s previous financial situation, Haselton said a lottery win could initially seem like a lot of money, but in reality it might not go as far in the long-run.
Last week, news broke of a Hamilton, Ont. woman who won a $10.5 million lottery in 2004, but is now living paycheque to paycheque. Haselton says that situation is more common than not.
She also points to the physical and emotional toll suddenly coming into large sums of money can have on an individual.
Haselton has worked with lottery winners who have been hospitalized for stress after being continually “harassed” about their winnings.
“The personal experience (of winning a lottery) is profound and complex,” she said. “That needs to be addressed as well as the decision on how to spend the money.”
