Lotteries portend money disasters
By JOHN KARIUKI | July 30th 2014
Lotteries are back with a bang. From FM radio stations and banks to mobile phone service providers and supermarket chains, businesses are giving out corporate largesse and turning people into instant millionaires, or so we are made to believe.
The stakes are higher this time round, ranging from fabulous treats to cash prizes of several millions of shillings. But the fact that this multifaceted national gambling is coming at a time when the cost of living has hit the roof could be a big minus.
The danger is that the jackpot winnings can be squandered on consumerism. While the sudden affluence ensures that the winners’ needs are "finally solved", extreme monetary caution is needed to avoid destructive ego trips. They may go on an acquisition spree, buying furniture and household goods, flashy cars, clothes and taking on extra lovers.
Add to this the ability to sit in church committees and neighbourhood councils, the duties that sudden riches bestow on people, and the potential for personal money disaster is obivious.
Unlike people born into money, some lottery winners do not know how to handle huge sums. Their windfall becomes more of a curse than a blessing.
Disregarding all social decorum and financial advice, such one-off millionaires confuse their windfall with wealth and boast about it. They plunge into a cascade of monetary mistakes that culminate in their bankruptcy.
So, what should people do with the sudden income if and when they win the lotteries? Paul Mwai, a personal banker with one bank in Nyahururu, advises people who may win anything above Sh100,000 to strike a balance between setting something aside in an emergency savings account and paying their existing debt.
“One should begin by budgeting,” he says, adding that the next step is to factor in overheads like school fees and use any balance to clear existing debts and some for investing.
Mwai warns against rationalising that the money “was not even there” in one’s plans and squandering it as many people do. “Treat it as a business start-up and hit the ground running,” he says.
It is apparent that when wealth explodes on some people as in the current lotteries, their appetite for risk taking soars. Mwai warns lottery winners against toying with investment ideas that they have never tried before seeking expert advice.
“Contrary to popular opinion, people don’t need financial advice only when they have big monies,” says Mwai.
Some people have turned around their lives by investing just Sh50,000 after getting such services.
Those who stumble onto sudden windfalls often go broke within a few years because of poor planning.
“On the other hand, people who have built wealth slowly have had time for their emotions and habits to develop to match their wealth,” he adds.
Olive Kirika, a previous winner a lottery, says when her money began dwindling, she decided to track all of her spending.
“I realised that I had been going to the bank to withdraw money every few weeks to help my kin and friends who were in financial problems,” she says. This is often the first step to financial ruin, she says.
After going through her books, Kirika quickly changed her way of doing things and invested in a business. This saved her from instant poverty.
Unlike those who have built their wealth from scratch, sudden "millionaires" are often reluctant to seek help in the mistaken sense of security that the vast amount of money they now have gives them.
This false confidence frequently leads to disaster. Such people find themselves surrounded by dishonest people whose flattery and admiration heightens their sense of daring and insulates them from the reality — until their money is over.
Social and monetary wisdom counsels people who have suddenly entered the club of the financial elite to make a gradual transition as they do with other major life changes, such as attending college and getting married.
They should not underestimate the challenges that the windfall presents and the lessons from past lottery winners.
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