Study finds neighbours of lotto winners are more likely to go bankrupt

A new study has revealed people whose neighbours win big are more likely to take risks with their money which lead to bankruptcy. Photo / File

We've all heard of the "lottery curse" — jackpot winners who have ended up facing financial ruin despite their good fortune.

But now it turns out the neighbours of lottery winners also face a similar curse.

A new study has revealed people whose neighbours win big are more likely to take risks with their money which lead to bankruptcy.

The research, which was conducted by the University of Alberta in Canada and Georgetown University in the United States, found jackpot winners' neighbours had a higher chance of ending up bankrupt than ordinary people.

According to the researchers, it's all due to increased conspicuous spending, financial risk taking and excessive borrowing — in other words, it's a case of "keeping up with the Joneses", with neighbours of winners feeling pressured into splashing their cash.

Published in a working paper from the Federal Reserve Bank of Philadelphia, the researchers pored over Canadian data relating to lottery winners and bankruptcy claims from 2004 to 2014.

It centred around people who won less than $150,000, because people who won more than that tended to move away to ritzier areas, where they then lived among richer people.

The conclusion?

The bigger the lottery win in a neighbourhood, the more cases of bankruptcy there tends to be in the same area.

The total amount of cash borrowed also rose across the whole neighbourhood, relative to the amount won.

This trend occurs as neighbours of lottery winners tended to splurge on obvious displays of wealth, such as new cars.

Interestingly, an earlier version of the study found neighbours of lottery winners did not tend to spend up on "non-visible" goods inside their homes, such as furniture, which their newly-wealthy neighbours were less likely to see.

"If your neighbour wins a million bucks, you're more likely to go bankrupt than if your neighbour wins a thousand bucks," Alberta School of Business economics professor Barry Scholnick told the Edmonton Journal.

"The explanation is this idea of conspicuous consumption. If your neighbour wins a lot and starts renovating their home or buys a boat, and you can see this, it's likely to cause financial distress.

"What the study does is it provides statistical evidence for the idea of keeping up with the Joneses … We try to show off to our neighbours."