Terry Herr, CFP®, CLU
It feels like we could all benefit from a couple million in the bank, but is entering the lottery worth it? In general, your odds of winning any jackpot prize are always slim. Take the Powerball, for example. Your chances of winning any prize with the Powerball are one in 24.9, but your chances of winning the jackpot are a mere one in 292.2 million.1 To put it in perspective, you’re actually more likely to be killed by lightning than you are to win the lottery. Yet, millions of Americans gamble - with many purchasing lottery tickets every week (or every day).
Let’s take a look into who gambles, and why the appeal is so great while the odds are so slim.
Who Plays The Lottery?
Even with a small chance of winning, nearly half of all U.S. adults have played the state lottery.2
Recent studies suggest, however, that the majority of lottery ticket purchasers tend to have a low socioeconomic status.
According to a recent survey, the bottom three groups on the socioeconomic scale spent the most on lottery tickets, while the highest socioeconomic group spent the least amount. Furthermore, the study found that Black survey participants spent significantly more on the lottery than any other racial or ethnic group surveyed.3
Another study found that 40 percent of lower-income Americans have reported buying a lottery ticket in the past year, and 11 percent of them admit that they sometimes gamble more than they should.2
The Chances of Winning Are Slim
You may think that by playing in multiple lottery games, you’re increasing your chances of taking home the prize. In reality, gambling doesn’t work that way.
The only way to increase your odds of winning is by purchasing multiple lottery tickets for the same lottery game. But, unfortunately, if your odds of winning are one in a million, two in a million is not much of an increase. To significantly improve your chances of winning, you would need to purchase a lot of tickets - which, of course, can get expensive. It’s also important to note that as more and more people buy into a lottery game, the chances of winning decrease for everyone.
At that point, it’d be up to you to decide - is it really worth it?
Winning May Mean Losing
According to a CNBC, lottery winners are more likely to go bankrupt within 3-5 years than the average American. "instead of getting people out of financial trouble, winning the lottery got people into more trouble..." Americans in general have a financial literacy problem. Lottery winners are no different the often give to much away, forget about taxes, stop working, lose purpose and just spend money at unsustainable rates.4
If the people who have the least disposable income to spend statistically spend the most on lottery tickets - why? They know their chances of winning are slim to none, yet they continue to spend their hard-earned money on lottery tickets. There are a few potential reasons why this may be.
People are hopeful that winning the jackpot could change their lives. Whether they want to pay off debt, quit their job or buy their dream home, some people see the small chance of winning the lottery as an easy way to accomplish their financial goals. And for many, the opportunity to be hopeful for a day or two is worth the price of a ticket.
Lottery tickets are cheap. When you spend $2 on a ticket, it doesn’t feel like a big waste of money. Plus, if you do win, there’s a huge payoff. Of course, the reality of the situation paints a much different story. Low-income families end up spending hundreds of dollars a year on lottery tickets - turning that harmless $2 ticket into a much bigger financial burden.
Entering the lottery becomes habitual. Eventually, grabbing a lottery ticket at the store is like getting your morning coffee or buying milk each week. Once you get into it, it’s hard to give up on the chance of buying the lucky ticket.
When you combine all these motivations, you can see why people can get sucked into gambling a percentage of their income each year. If you find yourself purchasing more lottery tickets than you know you should, consider a more profitable alternative like creating a habit of investing that money or putting it towards your retirement account.
I'm not anti-lottery but I think you should be equally excited to put money into your retirement plan. The odds that a professionally created financial plan and a diversified investment strategy will likely yield better odds to achieve your goals than the lottery. Contact Us to learn more about how to create a plan that works for you.
This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Tax strategies and information are hypothetical, and assumptions may vary. Tax law varies by State. It can and does change frequently, therefore this information should not be construed as tax advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any financial product. Please consult legal or tax professionals for specific information regarding your individual situation.