Skepticism regarding the long-term impact of cash transfers may be warranted

The Ticket to Easy Street? The Financial Consequences of Winning the Lottery by Scott Hankins, et al

Abstract

This paper examines whether giving large cash transfers to financially distressed people causes them to avoid bankruptcy. A comparison of Florida Lottery winners who randomly received $50,000 to $150,000 to small winners indicates that such transfers only postpone bankruptcy rather than prevent it, a result inconsistent with the negative shock model of bankruptcy. Furthermore, the large winners who subsequently filed for bankruptcy had similar net assets and unsecured debt as small winners. Thus, our findings suggest that skepticism regarding the long-term impact of cash transfers may be warranted.

Veiled but basically consistent with what we have seen in economic development - giving capital to countries to develop themselves is a waste of money unless they have the cultural and institutional structures that will allow them to use that money well. This study suggests the same is true at the personal level. Transferring wealth to individuals not otherwise endowed with the human capital to use it well will end up being wasted.

All of which is ultimately just an affirmation of the old adage - A fool and his money are soon parted.