How Do People Spend Their Lottery Winnings?

If you are lucky enough to win America’s Powerball lottery jackpot Wednesday night, you could take home all or part of an estimated $1.5 billion.

You can play the lottery in all but six U.S. states. The game of chance could forever change the life of the winner or winners.

Whatever the final jackpot is, the federal government will get its share of the money – almost 40 percent in taxes. Then, depending on where you live, the state government could take another 8 percent.

But still, if a single Powerball winner takes the jackpot in a lump sum and pays all the tax, she or he could walk away with over $500 million.

Until now, the largest U.S. lottery prize ever offered -- $656 million – was paid out in a Mega Millions game in 2012.

The chances of winning the Powerball game are 1-in-292 million. A player chooses, or has the computer choose, five numbers from one through 69. Then the sixth number is a “Powerball” -- from one through 26.

What do lottery winners do with their money? And how does the government use the money raised from ticket sales?

A website called FiveThirtyEight.com wrote about how the money is divided.

The first point is fairly easy. Most of the money raised from ticket sales goes to the prize pool. How else can you create a jackpot of over $1 billion?

But after that, the website says it is not clear how Powerball and other lotteries affect individual states.

The story is based on a study of money spent on lotteries in 43 states in 2012. The total was almost $60 billion.

The largest part of the “pie” goes to funding the prize pool. It eats up about two-thirds. After that, about five percent goes to the administrative costs of organizing the lottery in each state. That leaves just under 30 percent for each state to use as it wants.

However, FiveThirtyEight says that is where the transparency ends. Most states do not specifically report on how that money is divided.

ABC News examined the effects of a big Powerball jackpot from 2001. It found that while some states put the money in a “general fund,” other states use the money for environmental protection, schools or parks and recreation.

However, many experts believe that when states begin to receive lottery money, state officials factor that into the government spending. That can have a bad effect on other spending.

Patrick Pierce is a political science professor at St. Mary’s College in Indiana.

He says if a state joins the lottery and claims the money will be used for education projects, it only makes a difference for one year. After that, the state begins to count on the lottery money, and it reduces education spending.

“Given a few years,” he says, “a state would have spent more on education without a lottery.”

States do use lottery money for some government projects. But what about individual winners?

A few years ago, Forbes wrote a story about 11 lottery winners and what they said they would do with their winnings.

The most popular answers included: financing college for their children; buying homes; paying off loans; setting up a financial plan, or trust, for family members; going fishing; and going to school.

Here’s what happened to some other lottery winners, according to a study from the website PopSugar.com.

First, the good stories:

One married couple from Canada won $11.2 million, and gave most of it away to charitable groups after making gifts to family members.

A school teacher won $111-million in a Powerball game over 20 years ago. He started a summer camp for children.

A couple from Scotland won about $250 million five years ago. They set up a financial program and made gifts to artists, sick children, neighbors in need and other causes in their community.

Now, the not-so-good examples:

A couple in England won a prize worth almost $3 million. They bought a new home, some luxury cars, went on trips and spent more money. Arguments and bad investments led to debt and a break-up.

One woman in New Jersey won big prizes in both 1985 and 1986. She took home over $5 million. But she lost it all at Atlantic City casinos.

Other lottery winners burned through their winnings by spending big, avoiding taxes (and suffering the punishment) and giving away more money than they had.

I’m Dan Friedell.

Dan Friedell wrote this story for Learning English based on information from FiveThirtyEight.com, ABC News and Forbes. George Grow was the editor.

Do you think money from a lottery could fund projects where you live? We want to hear from you. Write to us in the Comments section or on our Facebook page.

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Words in This Story

ticket – n. a card or piece of paper that shows that you are playing a contest or game of chance.

pool – n. combining money from each player of a game.

jackpot – n. a usually large amount of money won in a lottery or other game of chance

lottery – n. a way of raising money for a government or other organization in which individuals compete in a game of chance to win prizes

transparency – n. the quality that makes something easy to understand

factor – v. to consider or include (something) in making a judgment or estimate

recreation – n. something people do to have fun : activities done for enjoyment

luxury – adj. something that is costly