The Sudden Wealth Syndrome: Why So Many Lottery Winners Go Broke

A photo showing two Powerball tickets.

At one point or another, almost everyone has dreamed of buying a lottery ticket on a whim, matching the winning numbers, and miraculously waking up a millionaire. But despite this commonly held fantasy, nearly one-third of big lottery winners, according to the Certified Financial Planner Board of Standards, go broke and declare bankruptcy within just a few years. Some sources cite a number even as high as 60% when it comes to the bankruptcy rate among lottery winners! So why does this happen?

It all comes down to psychology. Even though most people imagine what it might be like to win the lottery, they often have never had to deal with the life changes that result from amassing large sums of money. For this reason, when they do finally hit the jackpot, the initial winner’s high makes them discount the financial and mental health challenges that come with the road to riches.  

Expectedly, the first moment they realize they have won the lottery is euphoric. Neuroscientists describe this experience as an overwhelming deluge of dopamine, which can impair judgment and lead to impulsive decision-making. Psychologists explain that because the brain is not wired to prudently respond to these shocking and life-altering situations, a sensation known as “Sudden Wealth Syndrome” takes hold of the winner's mind. Unlike when they slowly increase their income, sudden wealth shocks don’t give the mind enough time to adjust or plan ahead. 

As such, many winners experience a sort of lifestyle inflation. In the haze of it all, winners, especially those who had come from underprivileged backgrounds, often immediately quit their jobs, set off on dream vacations, and purchase opulent mansions before assessing the long-term consequences of such actions. For example, a winner who used to spend $50,000 a year might feel justified in haphazardly throwing away $500,000 in a single day. These seemingly affordable purchases can lead to additional expenditures such as property taxes, maintenance, and insurance. However, not all problems come in the form of money for lottery winners. Jack Whittaker, for instance, was already worth $17 million when he won the $315 million jackpot in 2002. Thus, Whittaker knew quite a bit about financial planning and management, and he was safely able to spend lavishly and throw away millions. But when news of his win spread, he and his family became the target of many robberies and even murders, all in an attempt to steal his money. His once-happy life was in ruins, and it wasn’t even due to his bad financial management, as is the case with many lottery winners. Looking back on his win, he later said that he wished he’d torn up the ticket. 

There are plenty of other reasons as well for why most winners end up becoming broke and unhappy. One of the biggest contributors is the social pressure for winners to share their wealth with others. Family and friends often request loans or gifts, which can quickly deplete even the highest savings. When winners refuse these demands, they may face bitterness from loved ones. The relationships winners had relied on for support before their “win” can become sources of conflict as longtime friends feel jealous, family members become controlling, and new acquaintances try to use them for their money. This can understandably make winners mistrustful of others, especially in light of the fact that some winners have even been kidnapped and extorted. 

Even though Sudden Wealth Syndrome (SWS) isn’t an officially recognized diagnosis, many therapists working with lottery winners observe symptoms similar to an identity crisis. Specifically, many winners feel they didn’t earn their money and struggle with guilt or impostor syndrome. This discomfort can lead to even greater struggles like substance abuse, severe anxiety, and paranoia. In fact, outside of the initial stage of excitement and lavish spending, SWS and the struggles that come with it are often the root causes for why lottery winners can’t focus and properly manage their money, making them more suceptible to scams and bad spending habits, which usually serve as a coping mechanism. Others may self-sabotage to get back to a level of wealth they’re psychologically and financially comfortable with. Thankfully, research has shown that the brain adapts far better to gradual increases in wealth than sudden ones. People who work for their money over time are more likely to develop the skills, habits, and support networks needed to handle it properly.

But don’t give up on your unlikely lottery dreams just yet. After all, not all lottery winners end up in financial ruin. In fact, some have turned even moderate lottery wins into admirable success stories. For example, Brad Duke won $220 million in 2005 and set a lofty goal of turning his winnings into $1 billion. Instead of splurging, he assembled a team of trusted financial advisors, invested wisely, maintained a low profile, and stuck to a strict budget. Other successful winners similarly hired reputable financial planners, established trusts to protect their assets, and maintained their pre-lottery lifestyle. Experts in both psychology and finance agree that a determining factor in successful wealth management is having a strong support system of people who will tell you what you need to hear, not just what you want to hear.

Although most of us will probably never win the lottery, the lessons from Sudden Wealth Syndrome apply to pretty much any rapid financial gain. So contrary to popular belief, money doesn’t automatically buy happiness. Without preparation and support, lottery wins, inheritance money, or successful business ventures can exacerbate any financial situation. But with enough patience, planning, and humility, a lottery jackpot can still become the opportunity of a lifetime.