A Powerball ticket for the largest lottery award ever won by an individual—an estimated $590.5 million—was sold last Saturday morning before that day’s drawing.  

The winner, who purchased the ticket at a Publix supermarket in Zephyrhills, Fla., has 60 days to claim the jackpot if he or she chooses a lump sum payment. By the state’s law, the person can't remain anonymous.

The good news for the winner and the bad news for cash-strapped states is that Florida has no state income tax and no state will be able to get a windfall for its state coffers. But many lottery winners of large—though not enormous—sums of money exhaust the funds within a few years.

There are a number of reasons why this occurs. 

The amount of lottery winnings that are quoted represent the lifetime amount of winnings, not the lump sum amount, which is considerably smaller. In addition, all lottery winnings are subject to taxation, including federal and state taxes that can lop off 40%-50% of the amount, based on where the winner resides. 

A lot of lottery winners also fall prey to con artists who offer investment and tax avoidance approaches that aren’t legitimate. The winner can end up owing back taxes, interest and penalties on the amount due. 

Another obstacle is sometimes well-intentioned: Family and friends who provide advice, but may also look for a handout. Bad advice and bad investments go hand-in-hand.

In addition, a huge infusion of cash can be a part of an unfortunate turn of events. Such was the case with Jack Whittaker of West Virginia, who won $315 million in 2002. Within a few years, his granddaughter died from a fatal drug overdose, his marriage ended in divorce and he had hundreds of lawsuits filed against him.  

An even worse fate awaited Floridian winner Abraham Shakespeare, who won a $30-million jackpot in 2006. A woman befriended him, became his financial adviser and then swindled him out of his dwindling fortune before murdering him.

One solution is to give the money away to charity, although if someone gave the entire amount away after claiming the prize, he would owe taxes on about half the funds, as charitable contributions are capped at 50%. Giving the ticket away to another person can also cause tax complications because it can be subject to a gift tax. 

The bottom line for large lottery winners is that they need independent counsel to avoid making mistakes. Inflation risk and taxes are the primary threats to a large lottery prize, especially if the amount is paid in the form of a lifetime annuity. 

Is the lottery a worthwhile investment for most people? The answer is, only in moderation. 

To spend $2 to buy a lottery ticket for entertainment value is one thing; spending $10 a week is another. If a 25-year-old person took the $10 he spent a week on lottery tickets and put it in his 401(k) plan and his employer had a 50% matching contribution with an 8% return, he would have a lump sum of $209,835 when retiring at age 65.  

Many people don’t realize the true cost of lotteries and gambling. Studies have shown that participation in lotteries can be likened to a form of a regressive tax on a lower-income bracket. 

Be sure to let your family, friends and clients know that financial literacy is as important as other subjects taught in school.