Winning the lottery is said to be a once-in-a-lifetime kind of opportunity. While luck may seem to have shined down on you, it looks like it may have ill effects towards your next-door neighbor. How can winning the lottery result to your neighbors' bankruptcy?
The Federal Reserve Bank of Philadelphia released its research findings on the percentage of bankruptcy filings among households living near people who have won the lottery, Realtor.com reported. The research showed that living next to a household that has won a huge amount from the lottery influences one to purchase things they do not really need.
"Income inequality induces poorer neighborhoods to consume more visible (rather than invisible) commodities to signal their abilities to 'keep up with the Joneses' to their richer neighbors," economists Sumit Agarwal, Vyacheslav Mikhed and Barry Scholnick stated in the report.
Unfortunately, not all households can keep up with this purchase, which only result to debts, and worse, bankruptcy. In the said study, it was found that "for every $1,000 increase in the lottery prize, there was a 2.4 percent increase in bankruptcy filings by the winner's neighbors over the next few years."
This may be a huge wakeup call for homeowners who need to realize the value of living only within their means. However, the economists revealed that people often tend to spend more in order for them not to feel like they are the poorest in the neighborhood.
It has also been found that those who filed for bankruptcy purchased "larger holdings of visible assets" whenever a next-door neighbor has won a larger lottery as compared to when a neighbor wins a smaller lottery.
As previously reported here on Realty Today, some lottery winners choose to invest their winnings on real estate, as it is the best way to diversify their portfolio.
Investing on real estate may also provide a stable source of income for the family and it may also serve as a good retirement home in the future.
