What We Think We’d Do With $1 Million, and What We’d Probably Do

by | May 1, 2023 | *Financial Awakenings, Asset Protection, Building Wealth, Cash Flow, Healthy Money Relationships, Life Aspiration Planning, Money Psychology, Weekly Column

What would you do with a million-dollar windfall?million

This question was the topic of a survey in a March 28, 2023, article by Jessica Whitehouse in onlinegambling.com, “This is how Americans would spend $1,000,000 in lottery winnings.” Before I read past the headline, I mentally answered, “Blow it!”

However, 80% of the 500 respondents said they would do one of three things with the money: buy a house (50%), invest it (17%), or pay off debts (13%). Maybe that was a sign that people are more practical and conservative than I was giving them credit for.

But I wasn’t convinced, so I dug a little deeper. I found an excellent article with research on lotteries, inheritances, and other windfalls by Jay Zagorsky, an economist and former professor at The Iowa State University. The article, “Winner of 1.5 billion Powerball faces long odds – but even longer odds of keeping it,” was posted on his blog on January 12, 2016. He summarizes research that “suggests many people quickly spend any unexpected windfalls,” and says, “Other studies found that instead of getting people out of financial trouble, winning the lottery got people into more trouble, since bankruptcy rates soared for lottery winners three to five years after winning.”

Dr. Zagorsky cites a 2001 paper by economists Guido Imbens and Bruce Sacerdote and statistician Donald Rubin which found that lottery winners saved only 16 cents of every dollar won. He points out that, “Overall, research shows lottery winners and people getting windfalls spend or blow through much of the money.”

His findings are certainly more in line with what I have experienced than are the findings of the Online Gambling survey.

Admittedly, 20% of the survey respondents had less financially conservative intentions for their winnings. They would use the money to travel the world, start a business, give (to charities, families, and friends), purchase a luxury vehicle, get a cosmetic procedure, buy a private island, or go into space. All of those are spending activities, except starting a business, which typically doesn’t end well for the majority of those who do.

It’s easy to see how a windfall would be quickly eroded for this 20%, but what about the 80% that intend to do financially wise things with the money?

One possible factor, which Zagorsky describes quite clearly and understandably, is the impact that taxes have on lottery winnings. A million-dollar jackpot in the headlines will amount to a significantly smaller actual check in hand after taxes are withheld.

However, perhaps the biggest reason for the disconnect between the Online Gambling survey and Zagorsky’s research can be boiled down to the difference between people’s perception and reality. There is often a substantial gap between our intentions—”what I should do,” and our behavior—”what I will do.”

Here is where perception especially departs from reality. I could fill a book with stories of people that I’ve known who lost substantial sums, sometimes everything they had, in real estate and the stock market. Included in that book would be people who paid down/off debt, only to borrow it all back. Just because we think we will take a seemingly positive financial course of action does not mean we have the knowledge, discipline, clarity, and courage to pull it off.

Both academic research and the stories of lottery winners suggest that people quickly spend inheritances and windfalls, regardless of their best intentions. This is why Susan Bradley, author of Sudden Money, suggests getting professional help to process the life transition before making any financial decisions. It’s an important first step toward aligning your perceptions with the reality of your changed financial status.


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