The lottery is just one of those fun things that we do as a way to try and beat the odds and strike it rich, right? For some that is true, but for others, often those with the least amount of money to spare, the lottery is a serious income drainer. Is it really as detrimental to some people's household budgets as some people say?
Many consumer finance gurus espouse negative views regarding the lottery. This is because the odds of winning the lottery are so remote that statistically speaking, there is, realistically and practically, no chance of hitting the big jackpot. According to author and financial talk show host Dave Ramsey, the odds of winning the big jackpot are 1 in 125 million, but numbers like that are hard for us to comprehend in a real way, so we'll try to break it down with the following example.
Let's assume that you went to the largest stadium in the world which happens to be in North Korea. The stadium was filled to capacity. As part of the price of your ticket, you were entered into a lottery where you could win a new car. In that case, your odds of winning are 1 in 150,000.
Would you be sitting on the edge of your seat in that stadium as they're reading the ticket number or would you believe that, realistically, you're not going to win? In order to equal the odds of winning the lottery you would have to fill that same stadium to capacity 833 more times and put all of those people together and have the same drawing for the one car. Would anybody believe that they could actually win in a crowd of people that large?
Still not convinced? If they were giving away a new home to just one person and everybody in the six most populated states in the United States entered, that would equal your chances of winning the lottery jackpot.
Your chances of winning the lottery are exceedingly remote, but that doesn't stop people from playing. In California, a study found that 40% of those who played the lottery were unemployed; in Maryland the poorest one-third of its population buys 60% of all lottery tickets; and in Michigan, people without a high school diploma spent five times more on the lottery than those with a college education. Finally, in numerous states, when the lottery was introduced, the number of adults who gambled increased 40%.
Is it just the North American lottery that has such terrible odds? If you lived in Ireland, you would only have to fill that same North Korean stadium only eight times to equal the odds of winning the big jackpot, but also keep in mind that the jackpot is smaller than the largest jackpots in the United States.
Play the Lottery for Retirement?
A curious headline was placed on the home page of the Mega Millions website on March 25, 2011 on a day when the odds of winning had gone up to 1 in 175 million - 1,166 stadiums in case you were wondering. The headline read, "Save for Retirement." Anti-gambling groups cried foul at this apparent attempt to spin the lottery as a means to fund a person's retirement and lottery officials quickly issued a statement saying that they were running a campaign that was encouraging people to dream about how they would use their winnings if they won.
With this in mind, is there a way to use the lottery as a retirement vehicle? Yes! One study in Texas found that a person without a college degree spent an average of $250 per year purchasing lottery tickets. If that same person were to start an IRA or other retirement vehicle that earned a conservative average 4% annual return and they contributed $250 per year for 30 years, they would have $15,392 once they reached retirement age. If they did the same thing for 40 years, that number would jump to more than $25,000. If it were possible to know the rate of future inflation, the number would be much higher.
Although some would argue that in today's economy there is no way to guarantee that the money would earn 4%, there's also no guarantee that it wouldn't earn far more than 4%, but all of that aside, the odds of having $15,000 after 30 years are largely in the person's favor. If that same person is betting their money on something with the odds of getting that money back at 125 million to 1, wouldn't they be ecstatic to know that they can nearly guarantee that they will make money by investing?
The Bottom Line
Much is said about how the lottery is essentially an extra tax on the poor and since statistics appear to show that an overwhelming amount of lottery participants reside in the lower economic classes, that may be true. Save your money or even better, invest it something safe. Even a close to zero interest savings account is better than the lottery.
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