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Question of the Day – The Lottery (Again)
By JLP | April 23, 2008
I received this email from a reader this morning:
JLP,
I stumbled across your site a few months ago, and have since been checking in here and there, and even finding particular points of interest in your archive subjects. As of the last couple of weeks, I have found myself anxiously clicking on your site link, which has found its way into my financial favorites folder, every day to see what new topic(s) of interest you have posted. I find your ‘blog’ very insightful, and can’t help but think that if more people read it, our country might not be finding itself in some of the sticky situations that are often the fodder for your daily subject matter; the mortgage crisis, insufficient retirement funding, etc.
I was prompted to write you today as an interesting topic has come to my attention in my office. There is a large lottery pool that goes on weekly, you know the ones where everyone puts in a few bucks and they amass a large number of tickets purchased, find out they didn’t win, and repeat the following week. Anyway, I do not participate, and recently have come to find out that along with myself, our financial analyst and our controller do not participate. In addition, I recall one of my statistics instructors from business school saying that he did not play the lottery, as well as one of my financial accounting instructors. They employ the same logic as me, that if they were to otherwise save the money in a shoebox, they would be up on the lottery group at the end. At least that is how the old analogy goes.
I know you have recently entertained some talk about what people would do if they won the lottery, but I was wondering what more financially minded people think of even playing the lottery. In other words, I was looking to expand my sample group to see if this is just a coincidental observation, or possibly a larger phenomenon.
I would be interested to see what comments come back on the question if posed.
Anyway, thank you for your time, and keep up the good work!
Thanks,
BR
Wow! I like getting emails like this! It makes all the hours of work worth it.
So, today’s question(s) of the day is:
Do you play the lottery?
Why or why not?
What about office lottery pools?
I don’t play the lottery. I realize that if I don’t play there’s absolutely NO CHANCE of winning but I’m okay with that. The lottery is a loser’s game. I don’t see anything wrong with playing the lottery but I do think that people who can’t afford it, shouldn’t be playing it. Unfortunately, those are the people who play the lottery. The lottery is no way to plan for retirement!
Topics: Question of the Day | 38 Comments »
April 23rd, 2008 at 12:01 pm
I do not play the lottery. These office pools actually give you worse odds in the end. If you take it to a logical extreme and pretend that the pool bought ALL of the tickets, then you would be guaranteed to win. However, the overall winnings would be less than the cost of the tickets. Even if the winnings paid out 100% of what is paid in, the tax hit would immediatly give you a negative return.
Therefor buying the most tickets is the worst odds (guaranteed loss), buying 1 less ticket would be slightly better odds, and so forth. Extrapoliting this, each less ticket gives better odds, then buying no tickets yields the best odds.
April 23rd, 2008 at 12:05 pm
I don’t play the lottery because I don’t think it’s much fun. But I don’t look down on people who do–just because something has negative expected value doesn’t mean it’s not worth it. Some people get a lot of enjoyment out of the lottery, so it’s worth it to them even if they lose. The same thing is true of other types of gambling (for some people, at least).
Obviously it’s different if you spend more than you can afford on lottery tickets. But there’s no reason I can see that it’s somehow inherently better to go to a movie for $10 than to buy $10 worth of lottery tickets.
April 23rd, 2008 at 12:14 pm
This may be silly, but I actually use my understanding of “pot odds” from poker. The odds of winning the Mega Millions jackpot are 135,000,000:1, so I only buy a ticket when the prize is over $135 million. The logic being that if you bought every single ticket in that drawing, you’d come out ahead, so the expected value of any given ticket is positive.
Still haven’t won anything, though.
April 23rd, 2008 at 12:15 pm
I don’t play the lottery or gamble. As your reader said, the odds of winning are so slim. I just don’t see the point.
The one time I will spend money in a lottery type situation is raffle tickets at charity events. At that point, I’m not expecting to win anything, but I want to donate to the cause.
April 23rd, 2008 at 12:16 pm
I believe that the lottery is a tax on people who are bad at math.
That said, I will buy a ticket for fun if the pot is over $100M. I don’t do office pools though.
April 23rd, 2008 at 12:17 pm
I will buy a ticket on occasion, no more than $5 in a year. I think the most I’ve ever gambled in a year (either lottery or casino) was $10 and that was due to a requested casino outing for a friend’s bday. I view the money as spent on entertainment. I do not expect any return on investment other than an hour with a friend or 15 seconds of scratchy goodness. I don’t bother with office pools.
My retirement plan is all about paying myself first and being moderate in my spending. Being consistent in those areas allows me to feel that the occasional gamble won’t break the bank.
April 23rd, 2008 at 12:38 pm
I don’t play the lottery, but usually buy a few tickets each year. Usually when a new record jackpot in the hundreds of millions is being set, I’ll throw a dollar into the ring. I know the odds are almost infinitely small, but I can spare 5 bucks a year.
But when it comes to the casino, that is another story. We probably go to the casino 5 or 6 times a year. But unlike the lottery, I almost always come out ahead. Not a lot, but at least you can play games that have calculated odds where you can have a reasonable chance of being entertained for a while and make a little money, break even, or lose a few bucks. We went to the casino just a few weeks ago, and ended up staying there for 5 hours. Between my wife and I, we left with about 20 bucks less than we came with. But, the casino bought us dinner, so you can call it even.
April 23rd, 2008 at 12:56 pm
If you play the lottery, play it for fun and entertainment, like going out with friends. Don’t play it to make money. It also might be a good way to socialize with colleagues at work. But I agree it is no way to make money.
On the flip side, we know a man who did actually win a huge lottery about 15 years ago and lives nicely on his winnings. I understand this is unusual as most go through it pretty quickly.
April 23rd, 2008 at 12:57 pm
Nope – I don’t play the lottery, but I don’t care whether other people do or not as long as they are doing it just for fun. For me, it’s just not very entertaining.
What does irk me are those people that really do play to win and have elaborate plans in place on what they would do if they won the lottery (yes, I do know a person like this).
I think I’ve spent probably $5 in lottery tickets in my entire life.
April 23rd, 2008 at 1:09 pm
almost consistently, when i’ve played the lottery, two things have happened:
1) it is in an office pool
2) i make my money back (approximately)
i understand that #2 is not always the case, but typically, with enough people, a small prize will be hit and we’ll obtain the money we put in to buy the ticket back.
i do it for fun, not for the money, because it would be stupid to assume that there would be any money coming. HOWEVER, my work does have a client that had an office that did this exact same thing, and they won the jackpot, and the entire office walked out of work the next day. except for the one guy who didn’t want to participate because it was a ‘waste of money’.
also worth noting is that when the lottery payout gets huge, more people play the lottery, and that makes it statistically LESS worthwhile to play, because pots are divided amongst winners.
April 23rd, 2008 at 1:10 pm
@Mitch — make sure you take Adam’s advice to heart and include taxes in your assessment.
April 23rd, 2008 at 1:20 pm
I used to buy lottery tickets in Florida when my expected value after taxes and the lump-sum payout option was greater than the cost to play, $1 per ticket. The Florida jackpot actually did get that high several times while I lived there and was old enough to play. Those jackpots also had a better chance of being split between multiple ticket holders, but that was too hard to figure out so I ignored that. I never played in pools.
The Colorado Lottery and Powerball never get that high, so I haven’t played since I moved here.
I do enjoy gambling, though. I play poker and I plan to play some more Black Jack and Roulette when I go to Vegas next. But those are different – they’re more of a game, with more decisions, and there’s the group excitement aspect. So I feel I get more enjoyment from my losses.
Note: I have bachelor degrees in statistics and finance and I work in the accounting department of a brewery.
April 23rd, 2008 at 1:34 pm
I play in an office pool for the sheer fun of having the discussion every two weeks or so of what we would do if we won and thinking about setting up the life long living off of investments and having hobby jobs. If you don’t play you don’t win. As long as it’s just 6 bucks every two weeks for my pool I don’t see any harm.
Now If you are spending 10% of your salary gambling, you need to seek help.
April 23rd, 2008 at 1:41 pm
I play the lottery when it gets to be a significantly large amount ($125M and over). But I only buy $1-2 a week.
I play because it’s nice to dream of living free of the stress of being able to provide for my kids’ future. Right now we can’t afford to help them pay for college, and we have no significant inheritance for them. I also like the idea of being able to help my sister and her family, who have been struggling financially for the past few years.
I did office lottery pools at one company, but we only did them when the jackpot would go over $200M. So it was a relatively rare occurrence there. Plus, I earned a higher salary at the time and could do the $10 buy-in without cringing too much.
April 23rd, 2008 at 1:43 pm
I do not play the lottery for this reason. Nothing new, just negative expected value, that’s all. Same thing for office pools.
April 23rd, 2008 at 2:17 pm
Like most people who commented, I don’t typically play – but I will buy a single ticket everyone once in awhile if the jackpots is over $100MM. I’ve spent less than $5, in total, on lottery tickets in the past two years. I don’t participate in office pools or the like, but it’s nice to dream every once in awhile.
April 23rd, 2008 at 2:19 pm
I don’t play the lottery, but my husband does once in awhile. His last name is Spanish, so he thinks it increases his chances.
One of the mottos of the California lottery is “Our schools win, too”. I don’t see that the schools have won anything from the lottery, and health care is not a basic entitlement. The mismanagement of funds, including lottery funds, discourages me from contributing unnecessarily. I know I would be contributing to waste, in a country where people have basic needs unmet.
April 23rd, 2008 at 2:45 pm
If I take $1 a week, from the age of 20 to the age of 65 and throw it in with my savings plan, with an average market return, I’ll have an extra $66,240 when I retire. Even with inflation that is a much better return than the expected return from playing the lotto.
Of course if I wanted to have fun with it (aka, throw it away with negative expected return) I might throw it in some penny stocks instead. A well researched penny stock has much better odds than the lotto.
April 23rd, 2008 at 3:28 pm
Also of Note: That statistics degree was paid for out of the Florida Lottery fund.
April 23rd, 2008 at 4:38 pm
I don’t play the lottery anymore, but I used to. I used to work across the street from a store that sold tickets and every once in a while I’d go in and get some scratch-offs for the heck of it. I never won much. Now I don’t play cause I’m not near a quick place to get tickets. I’d have to actually stop at a store that sells them so I don’t play anymore.
I know the odds are ridiculous and it’s money out the window, but I just chalk it up to entertainment. Now if I were living in a trailer or eating pork & beans all the time, I’d have to rethink buying anything stupid like lottery tickets. But if it’s just a few bucks of fun that you can afford then why not?
April 23rd, 2008 at 5:21 pm
I don’t play the lottery and I was wondering if it was because I am what my husband calls “a pessimist.” I always correct him. What I really am is a realist! Ha!
April 23rd, 2008 at 7:38 pm
I don’t play the lottery. I use to buy a ticket every once in a while because it slightly increased my chances of winning. Now that I am on a snowball plan to get out of debt every dollar goes to the snowball.
April 23rd, 2008 at 9:23 pm
My parents used to buy a lottery ticket for family birthdays, as a joke–so, $4/year. Not too much for a little innocent fun. Otherwise, it’s a sucker’s game. Ironically, the fact that I never play doesn’t stop me from speculating about what I’d do if I won a large jackpot.
April 23rd, 2008 at 10:46 pm
I don’t play lottery, and I’m self-employed, which means office lottery pools are not an option.
Like other commenters have already said, there’s a negative return on each lottery ticket…
I think it’s much more fun to participate in local raffles. Every now and then, there are poorly organized raffles with cheap tickets and lots of prizes. You just have to know when and where to find them.
That, and there are certain things you can do to improve your chances of winning. It’s fun, there are (usually) no tax forms to fill out, and if you do it right, you’ll win most of the time.
As for gambling – I live in Nevada, so it’s really hard to ignore the overabundance of gambling all around me. My gambling is usually profitable, though – I’m a card-counter, and every now and then I sit down at a blackjack table for a few hours and walk away with more money than I came with.
April 24th, 2008 at 12:17 am
Don’t have a lottery here in Utah, but when I visit the old man in Washington, which is usually once or twice a year, I might pay a buck or two.
April 24th, 2008 at 1:21 am
My company is overpopulated with math and statistics majors (including me). So, we don’t do lottos…
April 24th, 2008 at 7:54 am
I’m not much of a lottery player – I like my money a little too much to “risk” it. I grew up with a father that plays it religiously every week. He spends $5 every Wednesday and Friday on his ticket – I think the most he’s ever won is $300 and that hardly makes up for the amount he’s spent on it. I once heard that the lottery is a poor man’s game. I think about that every time I get caught up in the moment.
Regarding gambling in general, my husband loves to play poker. On the rare occasion that we visit a casino, we make sure to discuss the amount of $$ he can take with him. That way when the money runs out, it’s over.
April 24th, 2008 at 8:01 am
Everyone’s covered a lot of the bases, but I figured I’d contribute – I had a probability professor in school who said, “The lottery is a tax on those who don’t know probability.”
April 24th, 2008 at 8:09 am
I don’t play the lottery. Office pools are just as stupid. The principle is precisely the same. It is still a waste of money except for the 0.0001% who win big. There are also certain moral reasons why one wouldn’t want to contribute to a state lottery. Let the ignorant be the ones who finance the public schools, I say.
April 24th, 2008 at 10:26 am
Mega Millions: two dreams for a dollar!
When I buy a Mega Millions ticket, I focus on the jackpot and second prizes. And I imagine what I would do if I never had to work again (jackpot) or if I still had to work, but had some breathing room to make changes in what I do (second prize).
If I do it right (no more than twice a year), the results are enlightening. And can lead to real changes.
So yes, I will buy lottery tickets to the tune of one or two dollars a year. And they help me identify what I want so I can work toward it without on my own. (Although, I certainly wouldn’t complain if I actually, you know, won some money that way.)
As a self-awareness tool, the lottery has some value. As a wealth-building tool, not so much.
April 24th, 2008 at 12:12 pm
Let me join the chorus. I don’t do lotto, although my wife will buy a scratch off card on occasion when she travels. Here in Utah there is no legal form of gambling, so people travel across the border to another state to indulge.
Having said that, I support the use of lotteries and such to raise government funds. My reasoning is that lottery customers are generally those persons that aren’t paying a lot in income or property taxes, so this is a way of evening out the tax rates. I don’t have any statistics to back up that belief, just a hunch.
April 24th, 2008 at 1:36 pm
I don’t do lotto by myself, though I’ve probably spent $50 (in my entire life) on scratch tickets just for entertainment. I have done lotto pools a few of times, more for the office spirit than anything else. I put in the minimum and figure it as a cost of my career, like office-appropriate clothes or commuting expenses. The total I’ve put in office pools is probably under $100.
April 24th, 2008 at 4:14 pm
If my office were to have a lottery pool, I’d participate for the sole reason that if all my coworkers won, and left for good, I wouldn’t want to be left behind.
April 24th, 2008 at 4:59 pm
My husband occasionally plays the lottery – to the tune of $50-$100 per year. (Probably less than $600 lifetime – when we had less discretionary money we did not play) Just to dream. We know it’s silly but justify it as Entertainment. He plans on retiring early (We are saving aggressively the real way.) We rationalize that we have already won the lottery- in our state it paid for our Son’s entire college tuition and most of our Daughter’s.
April 25th, 2008 at 10:13 am
Paul stole my thunder – if lighting strikes, I do not want to be the only one showing up for work the next day. However, up here in Canada lottery winnings are tax free (like it will ever matter).
April 26th, 2008 at 9:29 am
While I feel as if it’s a waste of money to buy tickets for myself, I do purchase them as a present for older relatives that don’t need or want anything. The excitement for them is well worth the money and much more interesting than a fruit basket.
April 26th, 2008 at 4:14 pm
This may be pretty sneaky, but I’ve made verbal pacts with all my friends and family. If anyone wins the lottery, we all agree to give some of our winnings to each other. This way, I’ll at least have all my debts paid off. I figure having this many people playing the lottery greatly increases my odds of getting something.
Now, here’s the sneaky part: I almost NEVER play the lottery myself.
Granted, I’m less likely to be the “BIG” winner, but at least I’ll get SOMETHING if anybody I know wins.
So far, however, nobody I’ve known has won millions. But there’s always the chance
April 27th, 2008 at 11:57 am
I heard a quote once that really sums up the lottery thing… “Lotto is a Tax on the poor, Rich people don’t play it, because they know it doesn’t work. When you see a line for lottery ticket’s, who’s in it? Larry, Daryl and his other brother Daryl. You dont see a traffic jam of Mercedes, Jaguars, and Lexus’s Showing up to buy these lotto tickets”…
I like my good growth stock mutual funds better