Sometimes, I dream about winning the lottery. Logically, I know that the odds of winning are so slim that there’s a higher chance of me getting struck by lightning (multiple times) or even winning an Olympic medal for that matter.
Even so, I imagine a world in which I win the S$12m Hong Bao Draw tomorrow. I wouldn’t go to work anymore if I didn’t want to, and would pursue my leisure activities like skiing full-time. I would buy my dream home and, without a doubt, plan an epic trip around the world.
I am ready to bet that I’m not alone in this and that you probably harbour similar dreams as I. But we both know that without proper financial planning, this seemingly endless pot of gold will deplete sooner than we think.
Many big lottery winners over the years have lost their winnings and ended up where they started, or even worse off than before. One such person is Evelyn Adams, who beat the already insurmountable odds of winning one lottery draw by winning two. The American woman won back-to-back lotteries in 1985 and 1986 that totaled in US$5.3m. Taking inflation into account, that comes up to approximately US$12m (~S$16m) which is more than the Hong Bao Draw.
Before hitting the literal jackpot, Evelyn lived a modest life as a clerk in a convenience store. An avid lottery player, she increased her weekly lottery spending for many years before she became a winner. After multiple strokes of good luck, Evelyn paid off her bills and set up a fund for her daughter’s college tuition. She gave generous gifts to her friends and family, increasing her expenses dramatically.
Some of the funds were given out as loans, but Evelyn’s debtors never bothered to pay her back. To make matters worse, she started investing in businesses without doing adequate due diligence. All of this, combined with her habit of frequenting numerous Atlantic City casinos, resulted in her losing all her money. At present, Evelyn is living in a trailer.
Many lottery winners who end up losing their winnings share Evelyn’s story. There are a few common threads that tie them together, and one of these is their lack of ability to manage a big windfall.
Evelyn did not know what to do when she received such a large sum, and without reliable advice, she made do the best that she could. It’s possible that if she had access to the right financial knowledge that she would have done the three things below instead.
1. She would’ve gotten the right advisers
In interviews, successful lottery winners frequently mention that the first thing they did was hire a good accountant, lawyer, and financial adviser. Evelyn did not seem to have any of the three. If she had gotten the right people to help they could have eased the transition while helping her to plan according to her needs.
2. She would’ve planned her spending
If Evelyn had better financial knowledge, she would’ve had a higher chance of planning and keeping track of her expenditure effectively. She could have created a budget to watch her day-to-day spending, as these small outflows can add up quickly. The budget could also double as a tool to help her monitor the people she lent money to so that she would be on top of their repayments.
3. She would’ve made investments to grow her money
It’s possible that Evelyn would have played a more active role in growing her money if she had access to the right knowledge. Many of us are still intimidated by the idea of investing, and it was probably much harder for her to do so in the 80s when information was harder to come by. Without financial education, she may not have been aware of how to start investing her winnings even if she had wanted to do so.
There are many small windfalls that blow our way throughout our lives, like good salary bonuses or coming into an inheritance. Following the advice above, remember to seek help if you don’t know what to do next (engage advisers), plan what you want to do with your bonus (plan spending), and learn how to invest so you can grow your existing funds.
If you’re interested in improving your financial literacy, MoneySENSE provides good articles on basic financial concepts. If you prefer learning offline, you can attend free talks and workshops by the Institute for Financial Literacy.
For quick financial tips that improve your financial knowledge, subscribe to Asia Finance’s weekly newsletter. No matter who wins the S$12m Hong Bao Draw, it’s better to be a bit kiasu (prudent) and learn how to manage your money.
Before I go back to dreaming, good luck if you’ve bought a ticket for the Hong Bao Draw!