Have you ever stopped by the gas station or liquor store and picked up some lottery tickets? According to a 2016 Gallup Poll, roughly half of Americans play the lotto. This fun pastime has a longer history than you might think. Lotteries were first attempted in the U.S in 1776, with the goal of raising money for the War of Independence. The idea didn’t pan out as planned but lotteries were still widely attempted throughout early American history. Starting in the 1960s up until today, the lottery has made a comeback. Today, the lottery is played by millions of people hoping to win big. But if you’re hoping to use the lotto as a get-rich-quick scheme, you might want to think again.
You’ll likely lose money
When playing the lottery, there’s a high probability that you’ll end up losing money. Sure it might feel like you’re only spending a few bucks on it here and there, but all of that money adds up over time.
Americans spend ~$80 billion every year on the lottery. That’s around $640 per household. We estimate that the average household loses $486 every year, on average.
Let’s take PowerBall as an example. We can compute the exact after-tax expected value of a Powerball ticket using the probabilities on Powerball’s website. The average headline PowerBall jackpot is around $140 million. But this is paid through a 30 year annuity. The lump sum value is closer to $100 million.
In the table below, we calculate the average winnings after taxes with an average jackpot size.
On every $2 ticket you buy, you’re expected to lose $1.51! That’s pretty much the worst gamble you can make.
Instead of buying lottery tickets, let’s say you put that $640 every year into a savings account for 30 years with a 1 percent APY. After 30 years, you would have ~$22,200.
This is concerning because according to the Federal Reserve, 40% of Americans would struggle to come up with $400 in an emergency. If lottery money was instead put in savings, many Americans would be able to withstand financial emergencies more easily.
Putting your hard-earned money away to actually work for you and earn even more money is better for your financial future than spending on the lottery.
Most lotto winners end up broke
All of us have had that fantasy where we win the lottery, we can quit our jobs and move into a mansion and do whatever we want. Unfortunately, it doesn’t exactly work like that for most people.
In fact, around one-third of lottery winners end up filing bankruptcy after winning. Many lottery winners go overboard or have many people around them wanting to get their cut too.
The lottery can do more harm than good
So while winning the lottery is a nice fantasy, in reality, it’s not what it’s cracked up to be. The government markets the lottery as a good way to support the community and give funds to public projects like schools. While it does support public projects, at the end of the day, the lottery serves as a regressive tax and puts many in a worse financial position than they would be in without the lottery.
That’s why we built Yotta Savings. Using Yotta, you can get a similar thrill that the lottery provides but your money can only grow! So you can still have some fun while saving for your future.