Playing The Lottery As A Personal Finance Exercise
I’ve always heard that people who play the lottery are paying a tax on the poor. Meaning, the lottery tends to attract low-income consumers who pay what often amounts to a 100 percent tax on their money. In exchange, they receive an infinitesimal chance at a literal ticket out of poverty. By all accounts, playing the lottery in the name of personal finance would be counterintuitive. But, in fact, I do play the lottery as a personal finance exercise from time to time.
Playing the lottery as a personal finance exercise
When and why do I play the lottery? As for the when, I’ll usually end up playing when it’s least likely that I’ll win. As the jackpots start showing up on the local news or can be overheard in water cooler conversations at the office (to the extent that those exist), I’ll pay the “tax” and buy a ticket. The better question in these instances is why do I play the lottery? And the answer isn’t for the money.
The reason I like to very occasionally play the lottery is that you can’t help but let your mind wander when you purchase a lottery ticket. For a $2 Powerball ticket, what I’m really paying for is the ability to play out a winning scenario in my head. I’m paying $2 not for a chance to win $100 million—although it does come with a juicy one in 300 million chance at a jackpot—I’m paying for a chance to spend that money in my head. Basically, it’s a way to ask myself the question, “what would I do with $100 million?” Without the $2 entry fee, that’s nothing more than a hypothetical. But when I do purchase a ticket, for the 18 hours until the numbers are drawn, it’s a “real” possibility that I have to mentally prepare myself for.
Playing out these multi-million-dollar scenarios in my head is a good way for me to prioritize what I’m doing in my life and whether or not I would continue to do so if money was no object. It allows me to ask myself some important questions that, without that $2 ticket and the potential windfall it brings, I find myself unable to consider.
Would I quit my job immediately? Would I move? Where would I live? How would I spend my days? With whom would I want to spend my time? What percentage of the money would I gift or donate to friends and charities? Will I stop picking up pennies off the ground?
I look at that $2 tax as an allocation toward my under-funded imagination. I can’t get myself to buy-in to the hypotheticals unless I pony up the $2 and have some skin in the game.
Where have all the jackpots gone?
Does it seem to you like we haven’t had a good ole fashioned lottery craze in a little while? You would be correct in that hunch. Since the pandemic, Powerball and Mega Millions have reduced the starting jackpot (previously $40 million) and gone away with minimum increases between drawings that would help to hyper-inflate the jackpot figure. It goes without saying that the higher the jackpot, the more attention the lottery receives, and so begins the ticket buying frenzy.
These frenzies, despite the statistical evidence working against me, are typically when I’ll pay the tax and participate in my own personal finance exercise. As an aside, it’s always funny to me that a $500 million lottery causes such a stir, but the initial $40 million? What am I going to do with a measly $40 million? But I get it. I’m not paying for this $2 thought exercise more than once every few months, at most. Might as well go big.
What if you win the lottery?
If you’re just playing for fun every now and again, there’s no shame in the lottery game. But if you’re regularly plunking down a portion of your paycheck in the hopes of a big payout? Probably not the best use of your money. You’ve already been taxed once, no need to turn the rest of it over.
But you might win!
You won’t.
But you might!
No, you won’t.
Fine, say that you do win. The National Endowment for Financial Education estimates that 70 percent of lottery winners go broke in a matter of a few years following a financial windfall of this sort. Perhaps if the readers of personal finance blogs band together, we can change this unfortunate statistic. But as it stands, after overcoming the one in 300 million odds and winning the lottery, winners have just a 3 in 10 chance of holding onto their winnings. Therein lies the root of the issue, as it typically isn’t personal finance blog readers squandering paycheck after paycheck in the pursuit of largely unattainable riches.
Small lotteries as a form of entertainment
While my lottery modus operandi is to use a newsworthy jackpot as an opportunity to daydream, I’m not above a cheap thrill. Just as the lottery can be a tax on the poor, it can also be a tax on the bored. On occasion, it’s a tax I’m willing to pay. For $2 I can buy five minutes of entertainment in the form of a scratch off lottery ticket. That’s, what, a $24/hour rate? I’ve spent money on less-efficient forms of entertainment, to be sure.
I’m also not opposed to playing the 50/50 raffle at your local high school football game, in which 50 percent of the proceeds go to the winner and the other half goes to whatever noble cause your neighborhood school deems worthy. Contrary to the name of said raffle, you do not have a 50/50 chance at winning, but because there are slightly fewer people playing these raffles than the Powerball, you do have a realistic shot at netting a couple hundred bucks. And if not, hey, it’s for a good cause. Unless that asshole Frank wins it.
Should you play the lottery?
So, should you play the lottery? You do you. But if you’re short on cash? No, I wouldn’t play the lottery. If you’re banking on winning? No, that’s highly improbable (besides, I’m going to be the one to win it!). If you have a couple extra crumpled dollar bills in your pocket and are looking to spice up a random Tuesday? Go for it! But mostly, if you have a hard time asking yourself what results you are hoping to yield via your long-term money goals, playing the lottery is a good opportunity to let your mind walk in the shoes of the uber-rich and consider your options for a few hours. And, hopefully, it helps motivate you to find other means to accumulate such wealth should you unexpectedly not cash in.
There’s always a one in 300 million chance that you’ll be very appreciative that you played the lottery as a personal finance exercise.
Great article, definitely resonates with my views, I’ve always thought and heard that it’s more a tax on the poor too.
When it comes to when I play, I’m actually quite the opposite. I usually play when they’re running a promotion where they’re making a large number of millionaires. Part of me is thinking about the odds, although it doesn’t really make a dent on the number digits in the probably sadly! It’s mainly the concept that I like, exactly like you’ve highlighted where 70% of all lottery winner go broke in a few years, if people were just given a million, in my view they’d spend it much more likely and actually end up with a better quality of life.
For example, if people won a million, they’d probably upgrade their house, buy nice gifts for friends and family and go on some amazing holidays, however it wouldn’t destroy people like it does on when people win hundreds of millions. Although I might just be being naive, as I’d know I’d be very responsible if I won the million, or even the jackpot ha!
If there’s a strategy to it, it’s definitely NOT to play the big jackpots like I have! That’s a good point–winning a million (or $600k-ish after taxes) would be enough money for most people to get out of debt, upgrade some luxuries (house, car) and not overextend themselves. Some of these jackpots are almost too big for the winner’s own good. I’m going to have to keep an eye out for these promotions!
Thanks for the speedy reply. Those multiple millionaire jackpots are actually fairly frequent in the UK, although I agree, they don’t seem to feature too much elsewhere. Possibly because it takes away from the huge jackpot number that draws people in!
Did you know there are actually times where you should always buy into a lottery? Yes, as an example, there was an Australian syndicate who realized that if they bought every single ticket combination, they would win the lottery. This syndicate decided to buy all the tickets for $7M with a guaranteed, yes, you read that right, a guaranteed lottery win. As if they bought every single number combination, they would have to win. This meant the only thing holding them back was time to be able to buy all the tickets. Another possible obstacle was if they had to split the winnings, but at $27 Million, even if they split the winnings three ways, they would more than recoup their investment.
If I can find an opportunity like that I will definitely buy into the lottery! Until then, I will support my local charity lotteries that exist. I don’t buy them all but when I think it is good cause I will purhcase a ticket. However, I don’t buy into regular lotteries. I do have to say it is kinda fun to think about what it would be like if we actually won one of the charity lotteries but those are not enough to retire.
Thanks for the article.
Ha! I did read something similar about a group on the East Coast in the US, and a quick Google search shows me there is a lot to learn about these lottery syndicates! Sounds like an interesting rabbit hole to wander down.
Nothing wrong with guaranteed cash, though it does take some of the fun out of it in a way. I do wonder, since personal finance has become such a hobby of mine, if winning the lottery would actually be detrimental to my current standard of living, or if I’d simply find other hobbies. Like spending money. Those are the kind of questions I play the lottery to force myself to answer!
I like your philosophy about lotteries!
From my perspective, what we’re really buying is a little hope. Maybe, just maybe we’ll get lucky. The unfortunate part is those who can least afford it, are often the biggest spenders. In fact, for some folks it’s become their retirement plan.
I would agree that we’re buying a little bit of hope, as long as we’re aware that it’s not all that much hope. Still, somebody’s gotta win! In the meantime, might as well channel that hope into an honest conversation with yourself about where things stand in your life and finances. Thanks for stopping by!
I too occasionally play the lottery, though where I live lottery money is actually used to fund a lot of social and community causes. So for me, I know that for that infinitesimally small chance my money, or at least a little part of it, will be used for a good cause.
That’s great! That’s what I like about 50/50 raffles, knowing what the money is going for and helping to support that cause (in addition to helping make somebody’s day).
I buy a lottery ticket every blue moon when I am overworked and stressed. Lol. Hoping that it will be my ticket out. Mostly I go years without buying one.
That’s an interesting perspective to buy the ticket as quality check on your values. That has never crossed my mind. Of course I play the ‘what would I do with the money’ game but that’s just a byproduct that comes with playing the lotto. Never did it to intentionally stir those thoughts.
Most jackpot winners go broke because they never had a financial plan before their winnings so they aren’t financially disciplined. That remains true after the win.
A lot of people are just desperate for a way out of their situations. For others it’s the only way they can dream, which is sad when you think about it.
I agree, giving it a go with ‘spare change’ is reasonable.
Every blue moon is a good time for a lottery ticket! Part of it is me justifying my purchase when I do buy a ticket, but I find I never really have those internal dialogues unless prompted. Spot on about those who go broke–unfortunate how common it is.