Unexpected Windfalls, Education, and Mental Health: Evidence from Lottery Winners in Germany

This paper investigates the causal impact of large unexpected windfalls on individual mental health, physical health, as well as health behaviors. I use a large individual-level panel data set of lottery winners from Germany between the years 2000 and 2011 and observe lottery winners before and after winning a large lottery prize. Mental health declines immediately after winning a large lottery prize for individuals with low education and low levels of financial literacy. While these individuals report being happier after winning the lottery, evidence from commonly used SF-12 measures of mental health indicates that winners with low education experience increased role limitations due to emotional problems, are more anxious, and have less energy after their win. The impact on various measures of mental health is highly robust, statistically significant, economically significant, and persists for up to two years after the win. Unexpected windfalls have no impact on the mental health of individuals with high education or high financial literacy. Winning the lottery has no impact on individuals’ health behaviors such as smoking or alcohol consumption, and it has no impact on measures of physical health, such as doctor visits, hospital stays, or illness-related work absences regardless of education level. The current literature provides conflicting evidence on the effects of unexpected windfalls on mental health, and this paper contributes to the literature by being the first to directly investigate education and financial literacy in this context. JEL Codes: D1; I1; I3