Let’s say your neighbor wins the lottery. You would likely experience a range of emotions. But you wouldn’t think that their winning the lottery would impact your financial life. But it could.
Recently released research from the Federal Reserve Bank of Philadelphia indicates a significant increase in bankruptcies among households living near someone who won a large lottery jackpot. Economists theorize that people may observe the good fortune next door and feel pressure to accumulate more assets of their own.
This includes purchases of flashy cars and the acquisition of expensive electronics. Here’s the research’s headline finding as reported by the Wall Street Journal: for every one thousand dollar increase in the lottery price, there was a two point four percent increase in bankruptcy filings among the winner’s neighbors over the next few years.
As one might expect, these results are more pronounced for low income neighborhoods and in high income inequality communities. To generate their findings, three economists analyzed lottery prizes and bankruptcy filings over ten years in a Canadian province.
