How lottery winners can help us reinvest in financial literacy and education

You probably heard about the recent winner of the Powerball jackpot lottery, right?

The Powerball Lottery had ballooned to a record amount of $2.04 billion by November 2022. Three months later, 31-year-old Californian Edwin Castro finally turned in the winning ticket, choosing the one-time payout of $997.6 million cash option. Following the required federal taxes, he walked away with $628.5 million.

For all we know of Castro’s life prior to his absurdly wealthy new existence, he may be financially-savvy, disciplined, and achieving every bit of his financial wellness goals. We certainly hope so! It’s just that the statistics do not favor that outcome for many lottery winners, or how they eventually make out in the end.

One must also acknowledge that after a time to decompress and take it all in, the winner deserves a few purchases after a Powerball run like that, as Castro recently exercised his perfect right to do. One just hopes for the sake of preservation he can curb the impulses that have ruined so many who came before him.

Unfortunately, it doesn’t sound like he’s getting off to such a great start. A month after acquiring the staggering lump sum, USA Today reported Castro purchased a $25 million home in the Hollywood Hills, cashing in on the opportunity to live close to such famous neighbors as singer Ariana Grande, actress Dakota Johnson, and late-night comedian Jimmy Kimmel.

And then he bought another, a $4 million Japanese gem in his hometown of Altadena, California. But then he bought a third one in early September – a seven-bedroom, 11-bath compound, complete with a koi pond and sprawling infinity pool overlooking the entirety of Los Angeles. Add in there a Porsche 911 for good measure.

“Most people are not prepared to handle the responsibilities that come along with being wealthy,” says Steve Nielander, finance lecturer at the Fowler College of Business at San Diego State University. “This comes from reckless spending, giving away money to family and friends, and bad investments in business ventures that don’t have commercial viability.”

It is a rare individual that hasn’t imagined the prospect of winning the lottery. The access to tens to hundreds of millions of dollars suddenly at your fingertips, the idea that you’ll never have to worry about money again; it’s a seductive feeling. The reality, however, can take on an entirely different sensation. It can be made exponentially worse if you tell relatives, friends, and acquaintances too early. That makes you a target for exploitation and who knows who can come after you with a “great opportunity” or outright scam.

Lottery winner or underserved: both short on financial literacy and education

Be they wealthy, middle-income, or lower-income, there exists a dearth of financial literacy and education awareness in the U.S., especially when we’re talking about individuals coming into sudden wealth like, for example, lottery winners.

According to the Certified Financial Planner (CFP) Board of Standards, a third of lottery winners will eventually file for bankruptcy. In fact, lottery winners are more likely to declare bankruptcy within three to five years than the average American.

Predictably, winners often become reckless and irresponsible with that kind of crazy, newfound wealth. In fact, numbers prove the great majority of winners have lived their entire lives at the opposite end of the financial spectrum. According to Vox in early 2023, the dominant player base for such sweepstakes as Powerball or MegaMillions is significantly uneven.

The primary player base is disproportionately lower-income, less educated, nonwhite, and male. One in eight purchase a lottery ticket once a week, and those specific groups are represented in those categories. Ironically, the lowest quintile of income distribution doesn’t even have enough discretionary spending to gamble on lottery tickets.

These lottery winners are by and large individuals who had previously struggled with financial literacy, education, and therefore financial inclusion prior to their newfound riches, having too little exposure, engagement, or consultation from their primary mainstream institution.

Setting a standard for financial literacy and education awareness

The point here isn’t to highlight the successes or disasters of winning a Powerball lottery. The point is whether you’re talking about a lottery winner or an underserved credit union member, chances are they are the same person, and they need help. The odds are very good that the individual who just pulled the winning ticket needs just as much training in financial literacy and education as a wayward member going down the street to a predatory payday lender.

Financial literacy may benefit the member on their financial journeys, but it also benefits the credit union because better-informed members often result in better, more active members who can upscale to more products.

Cooperatives have a distinct opportunity to retarget their financial education programs to address the most influential issues and make a significant and meaningful difference.

• Target specific areas important to your community: Comprehensive financial education on a wide-ranging topic(s) is important, of course, but there may be a few common areas of personal finance in which people in your specific community may struggle. Perhaps focus a bit more of your resources towards those areas.

• Keep credit union’s focus on people: Everyone, lottery winners all the way to the underserved, deserve access to financial education. But some will require it a little more than others. According to Forbes, women, individuals of color, and young people score disproportionately lower on financial literacy surveys. Those resulting scores are due to such financial education resources being historically and systematically less accessible to those groups.

• Redefine what financial education success means: Financial literacy and its consistent upkeep over a lifetime isn’t about achieving some one-time, end-all-be-all test score. It’s not about passing a test. It’s understanding concepts and focusing on members’ behavioral outcomes that will shape their financial health habits. Coordinate an action-centric education program that incentivizes members to perform and automate the monthly and yearly tasks that will set them up for long-term stability and prosperity.

Empowering financial literacy and education in your credit union remains a perennial strength and marketable feature for attracting members, be they new consumers or lapsed members who lost their way due to the luring lights and tricky contract language of predatory payday lenders. Accessible and affordable small-dollar loans through the digital QCash platform – specifically suited for most credit union cores – can help your cooperative accomplish that mission.

For more information on enhancing your digital lending capabilities, I invite you to contact me in the form CUInsight has made available to you below. I look forward to speaking with you!