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The worst that could happen to you?

December 13, 2019 - 8:00am
David Surdam
Man with money flowing all around him

Let’s face reality: Few Americans are capable of handling a large financial windfall. Whether you sign a huge professional sports contract or win a Mega-Jackpot lottery, you may rue the day the windfall came your way and often leaves as suddenly.

I’m not being overly critical of lottery winners and young professional athletes. After all, people rarely have experience handling large sums of money prior to winning a lottery or becoming a pro player. There’s no Instant Wealth-holding 101 class offered in high school or college. Even financial literacy courses are not focused on handling sudden large windfalls.

Americans apparently have difficulty with numerical extremes, whether such extremes pertain to understanding riskiness of various activities (what’s a one-in-a-ten-million chance) or to handling tens of millions of dollars. I imagine for many Americans, even $100,000 seems unimaginable. Economists and other scholars have discovered that, past a certain level of income above subsistence, additional dollars generate relatively modest increases in life satisfaction.

Years ago, there was a silly television show, “Who Wants to Marry a Millionaire.” Typically there was some reasonably good-looking young guy, who claimed to have $1 million in assets. There were several women vying for his attention in this “reality television” show (which was as “real” as interacting with a television producer, script writer, and assorted actors can be). A fellow economist and I were discussing this show. She mentioned the wealth that the lucky female might share, but I pointed out that, adhering to the “four-per cent” rule of wealth holding, $1 million meant being able to safely spend only $40,000 per year. Such an amount was not austere but was not lavish, either. Let’s be generous, perhaps the young man was a successful entrepreneur worth $3 million. He, excuse me, they could safely spend $120,000 per year (.04 times $3 million) without depleting the estate. Such an income flow provides a comfortable but hardly luxurious life.

A surprising number of professional athletes and lottery winners go broke. They change their spending habits. After all, with a $5 million windfall, what’s a $120,000 Porsche or two or three (I don’t know much about cars, so, if my $120,000 is an unrealistic sticker price, please forgive me). Many people are motivated to be generous with their money, paying off children’s mortgages or student loans.

A less pleasant aspect lurks. As I tell my students, if you win a lottery, one of the first things to do is get an unlisted phone number. When you sign a big contract or win a big jackpot, you will discover just how many “cousins” you have. Several states require that winners of large jackpots reveal themselves to the media. Remember this advice: Where money collects, so will scoundrels. Professional athletes are renowned for their “posses,” collections of hangers-on, who siphon money (sometimes, admittedly, by providing services).

I like to be generous, but there are limits. Constantly being implored or pestered for money is wearying. Even the best of us trying to disburse our money responsibly would find doing so in the face of hordes of imploring relatives, friends, and charities onerous.

I have often thought the best way would be to win a modest lottery payout, say, just a one million dollar-lottery, especially if I did not have to publicly divulge my windfall. A million dollars would not appreciably alter my lifestyle, and the anonymity would enable me to disburse the money quietly.

With respect to winning a lottery, I suspect there is a demoralizing aspect. If you think about it, there’s no virtue associated with getting a windfall through a lottery. Most millionaires in America earned their wealth, usually by serving others. I find it interesting that politicians who dislike wealthy people rarely criticize winners of Mega-lotteries.

Readers of these blog pieces are in the fortunate situation of having a high chance of becoming millionaires through a slow but steady accretion of wealth based upon steady employment and prudent money management. Readers who do so can, years from now, reflect upon a lifetime of virtuous decisions and actions. Such reflection is likely to be more satisfying and longer-lasting than winning a jackpot.


The views and opinions expressed are those of the author and do not imply endorsement by the University of Northern Iowa.


Headshot of David Surdam

David Surdam

David Surdam received his Ph.D. in Economics from the University of Chicago. His dissertation, "Northern Naval Superiority and the Economics of the American Civil War," was supervised by Nobel-Prize Winner, Robert Fogel. Professor Surdam has taught at the University of Chicago, Northwestern University, Loyola University of Chicago, and the University of Oregon.