Michael Carroll was an English garbage collector who won ten million pounds in the UK National
Lottery in 2002 (That would have been worth around twenty million dollars at the time).
He became a tabloid newspaper celebrity for a while and was known as the King of The Chavs.
There was even a TV movie made about him in 2006.
In an interview shortly after his lottery win, Carroll said that he would not be tempted
into spending his money lavishly and only wanted to buy a three-bedroom house near a
lake where he could go fishing.
That sounds like a good plan, but, it’s not exactly the way things worked out.
You don’t usually get nicknamed “The King of The Chavs” while fishing quietly at a
lake.
Carroll quickly developed a taste for drugs, alcohol, and partying.
In 2005 he was given 240 hours of community service after it was found that while drunk,
he had been catapulting steel balls from his Mercedes van at parked cars and shop windows.
You are not meant to do that.
Almost any fisherman will tell you that catapulting steel balls from a van will scare the fish
away.
It was noted in court that he had accumulated 42 offences on his record by 2006.
In May 2010, less than ten years after winning the lottery, Carroll applied for his old job
as a garbage collector again, telling the press that he had no regrets about the way
in which he had spent his winnings.
In 2013 he spent three months in a hotel for the homeless after being unable to find work.
He is not the only lottery winner that ran into trouble…
In 2005 Roger and Lara Griffiths won £1.8 million pounds on the UK National Lottery.
They bought a big house and Roger got to record an album with the band he played with in university.
The interest alone on the couple’s lottery winnings would have earned them more than
the median UK household income at the time.
Some bad investments and failed business ventures of course followed, in 2010 their house even
burned down.
They ended up divorced, and by 2013 – just eight years after the big lottery win – Roger
had just seven pounds left in his bank account.
Evelyn Adams, a clerk in a convenience store really beat the odds.
She managed to win the New Jersey lottery twice – first in 1985 and again in 1986,
collecting a total of $5.4 million dollars.
She was the first person in the history of the New Jersey Lottery to win multiple million-dollar
jackpot prizes.
By 2012, Adams had spent all of her winnings, mostly gambling her wealth away at the tables
in Atlantic City casinos and squandering money on a string of unsuccessful business deals
– which included buying the convenience store that she used to work for.
Today she reportedly lives in a trailer.
We’ve all heard this type of story about how something like a lottery win, which at
first appeared to be a great blessing slowly revealed itself to be a curse.
The downward spiral in these stories is usually brought about by a number of factors like
winners partying and overspending, investing their winnings poorly, family and friends
asking for handouts, or even that the winner becomes a mark for criminals and conmen.
We learn in these stories that for lottery winners, life without a job or responsibility
quickly becomes meaningless, they become distant from their true friends and soon lose everything.
These types of scenarios (as we have just seen) have all played out for many lottery
winners.
But despite the curse that says, “winning the lottery will ruin your life,” a number
of studies from around the world show that winning big cash prizes often leads to big
increases in life satisfaction over the long term.
The lottery winners curse simply isn’t true.
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So, what does academic literature say about the curse of winning the lottery?
Well, a 2018 NBER Paper entitled “Long-run effects of lottery wealth on psychological
well-being” led by researchers with the Stockholm School of Economics, Stockholm University
and NYU, studied 3,000 Swedish lottery winners who had won a combined $277 million dollars
between five and 22 years earlier.
The researchers asked them questions like, “All things considered, how happy would
you say you are?” and, “Taking all things together in your life, how satisfied would
you say that you are with your life these days?”
The participants reported being generally more satisfied with life after winning the
lottery.
“Large-prize winners reported experiencing sustained increases in overall life satisfaction
that persist for over a decade and show no evidence of dissipating with time,” according
to the researchers.
What about mental health and happiness, then?
According to the paper, no strong evidence was found that lottery winners ended up being
happier in the long run, but they did find strong evidence that the lottery winners were
more satisfied with their lives years after winning.
So, what about the stories that lottery wins estrange the winners from their friends?
I think we can all imagine how that might happen where your newfound wealth makes your
friends jealous, or maybe you just find yourself wanting to do new things that your old friends
can’t afford to do, so you find new wealthier friends – friends who possibly don’t understand
you the way your old friends did.
Well, a recent study from researchers at the London School of Economics and Warwick Business
School finds that people who win more than £10,000 on the lottery end up spending more
time socializing with their friends, and less time talking to neighbours after winning the
lottery.
The research finds that the more someone wins in the lottery, the more new friends they
are likely to make, which they say is consistent with the complementary effect of income on
the strength of social ties.
The opposite is true with regards to social ties held for more instrumental reasons such
as talking to neighbors.
Winning more in the lottery reduces the size of an individuals support network, and this
is not overly surprising as wealthier people don’t tend to rely on their friends and
family as much for support as poorer people do.
The social ties that get broken are different to friendships, they are social ties that
are primarily useful for practical reasons and require little emotional investment.
These are apparently often substituted away with an increase in income.
According to a 2016 paper by Bianchi and Vohs, higher socioeconomic status individuals prioritize
social ties that are not necessarily valuable for resources, but instead for emotional wellbeing.
Tests for robustness in the study found that average lottery win effects tend to be skewed
by the really big winners, suggesting that small to medium-sized wins (below ten thousand
pounds or dollars) are often not enough to change people’s social ties in a meaningful
manner.
According to the paper, increases in income can have a number of significant consequences
on social behavior.
First, they have an impact on the resources available for creating and maintaining social
networks – basically, wealthier people have more time and money to socialize and so they
socialize more.
Secondly, increases in income have the potential to influence social consumption, which ‘lubricates’
social relationships.
Essentially, as people’s wealth grows, they can better afford to choose where to go and
who to spend time with.
It’s only so surprising based on all of this that lottery winners spend more time
with close friends and less time with neighbors and acquaintances after their big win.
A vast literature exists showing the strong positive relationship between income and good
health and a strong negative association with mortality.
The direction of causality is however more dubious, do people become wealthier because
they have good health to start with, or are wealthy people healthier because their wealth
buys greater access to resources like good food, gyms and healthcare?
A 2002 paper called “Estimating the Effect of Income on Health and Mortality Using Lottery
Prizes as Exogenous Source of Variation in Income” found that lottery winners tend
to be healthier and live longer than non-lottery-winners.
A 2022 paper called “Income windfalls and overweight: evidence from lottery wins”
found that in the UK a £1000 pound lottery win reduces the risk of an individual being
overweight among low educated individuals by four and a half to five percentage points
12 months after the lottery win.
Maintaining a healthy weight may (of course) be a luxury good, the wealthy may have better
access to fresh foods, gym memberships and housing in healthy environments - or higher
income individuals might moderate their weight and strive to be healthier as they compare
themselves to other people who are in better shape.
But one way or another according to the research, lottery wins tend to be correlated with better
overall health and a healthier body mass index.
So why do we believe that everything ends horribly for lottery winners?
Well, to start with it might just feel good for people to believe that great wealth - which
seems out of reach - will only bring bad things.
But, in most articles about the lottery winners curse there is a frequently cited statistic
from the National Endowment for Financial Education which states that seventy percent
of lottery winners go bankrupt just a few years after winning.
It’s worth clarifying that in 2018, the NEFE came out with a press release saying
that those numbers were not backed up by any research.
A study looking at thirty five thousand Florida lottery winners (the craziest kind of lottery
winners) found that only six percent of the cohort later filed for bankruptcy.
That is a lot less than the seventy percent that is frequently reported.
The Swedish study that I mentioned earlier showed that most lottery winners don’t blow
through their winnings and in fact, they usually don’t even quit their jobs.
The researchers found that people who won large sums of money were typically still wealthier
ten years after their win, compared to people who won small sums of money.
Lottery jackpot winners do typically cut down on the hours they work after the win, but
they do this mostly by taking longer vacations.
the Swedish study only studied lottery winners who won between a hundred thousand dollars
and $2 million.
There are prizes that are much larger than that around the world, and really huge prizes
might have really different effects.
The Florida lottery winners’ study did find that lottery winners in general were slightly
more likely than the average person to eventually file for bankruptcy, but that bankruptcy was
still an unusual outcome for this group.
Interestingly the size of the win made no difference in the probability of a lottery
winner filing for bankruptcy.
It is maybe not too surprising that people who play the lottery – or who gamble in
general are more likely to go bankrupt than average.
Research shows that the bottom three quintiles in socioeconomic status spend the most on
lottery tickets and the highest socioeconomic group spent the least on the lottery.
Evelyn Adams – the woman who won the New Jersey Lottery twice before losing all of
her money allegedly spent twenty-five dollars per week on lottery tickets for several years
before her first win.
After the first win she upped her weekly spending to $100 dollars per week on lottery tickets
before winning again.
The odds of winning the first jackpot were 1 in 3.2 million; the second, 1 in 5.2 million.
I guess the true story is a bit less exciting than the one that most people believe.
Lottery winners don’t usually go nuts, quit their jobs and blow all the money, they typically
get healthier, slimmer and use their good fortune to increase their financial security,
to take more holidays and to spend more time with their closest friends.
If you found this video interesting, you should watch my most recent video on the Turkish
economy next.
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Have a great day and see you in the next video.