Hard Working Traditional Values With A Dash of Fun

Hard Working Traditional Values With A Dash of Fun

Tuesday, September 9, 2014

Lotteries - Everyone Loses

Updated February 12, 2015

The news is announcing there will be three winners of the current $564 million Powerball jackpot. These new millionaires look to be big winners, but for everyone else, lotteries are for losers. And if past winners are any indication, these new winners may yet end up in the poorhouse. 

In fact, when it comes to lotteries, everyone is a loser.

Stupid Fact One - You're Odds of Winning Are Less Than in Vegas

In Vegas you will see casinos advertise that they payout 97 percent on slots, meaning for every dollar bet by the public, the casino keeps 3 cents and returns 97 cents in prizes to winners. With government lotteries you are most likely only seeing 50 percent used for prizes. The government keeps the rest, plus it taxes your winnings.

Stupid Fact Two - Lotteries Don't Provide More Revenue to State Projects

Some people who won't gamble in Vegas are okay with spending money on lottery tickets because the money goes to a good cause. 

Not really.  

Wherever lottery revenue is used for schools or parks or some other popular government program, state legislatures have long figured out that if their state lottery is a source of revenue, they can cut funding from regular tax sources. So lotteries don't really bring in more money for these favorite programs.

Stupid Fact Three - Lotteries Are A Lousy Investment

Except for social security payments that workers are forced to pay, many Americans set nothing aside for retirement, and yet millions of Americans spend $30 or more each month on lottery tickets. If they win big (and don't lose their ticket) they are set for retirement, so they think. 

Remember, the government is only giving back 50 percent in prizes so in order to have any chance of winning you have to play a lot, but even if you win, you don't win much.  Walter Hickey, with The Business Insider, reports that to have a 99 percent chance of winning the lotto you have to buy 145 $2 tickets. The most common prize is $4. Do the math, who wants to spend $290 to win $4? 


Plus, even if you win a big prize, guess what? The government could take up to 50% in taxes.

What would happen if you took that same $30 per month wasted on lottery tickets and invested it in a Roth IRA mutual fund from age 18 to age 67. That's a total of $18,000 invested over 50 years. Based on past stock market history, it is very possible that your investment could grow at an average 8% per year and you would have around $250,000, tax free. If you managed to earn an average 10%, you would have around $500,000, tax free. And if you managed to earn an average 12%, you would have around $1,000,000, tax free.

Weigh the difference -- the potential winnings from buying 9,000 $2 lottery tickets or $250,000 to $1,000,000?

Stupid Fact Four - Lottery Winners Lose it All

You may or may not be surprised to learn that over 70% of big lottery prize winners go bankrupt.  The type of people who think lotteries are a smart investment are not likely to all of a sudden smarten up when they become millionaires. The lives of many past lottery winners read like a tabloid -- divorces, affairs, scandals, court fights, even murders. It turns out the same skills it takes to Get Rich Quick are the ones to Get Poor Quick.

Repeat after me -- Lotteries are for losers.

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