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How About a Lottery for Savers?

By JLP | February 26, 2010

NOTE: Thanks to reader, JT, for pointing this article out. Very cool topic.

First off, I found this quote from this article hard to believe:

The average American household snaps up about $500 annually in lottery tickets, whose appeal is especially strong among those with lower incomes. Some estimates suggest that more than 80 percent of lottery revenue comes from households making less than $50,000 a year — the very people who have the hardest time saving. In fact, 38 percent of people earning less than $25,000 a year think the lottery is the most practical way they’ll accumulate a few hundred thousand dollars in their lifetimes, according to the Consumer Federation of America.

The average American household spends $500 per year buying lottery tickets! That works out to $41.67 per month. That may not sound like much to some but it sounds like a lot to me—especially when you look at the opportunity cost of $41.67.

Check this out. Using my Excel spreadsheets with S&P 500 Index total returns, I ran a few calculations. Here is how much a person could potentially have if they directed their lottery spending to their retirement plan:

The Cost of Playing the Lottery

Of course this is no different from any other spending we may do on frivolous things. However, the lottery to me is bad because of the odds of winning. A person who plays the lottery is almost destined to lose.

Anyway, believe it or not, that’s not the point of this post. What I wanted to point out was how some credit unions came together and formed a “savings lottery” in order to encourage people to save money. According to the artice, for every $25 a person deposits into their account, they receive one entry into a drawing for $100,000 held a year later. The article also mentions other prizes were given away on a monthly basis.

Personally, I like this idea. It’s promoting a good idea: thrift. We need more thrift in this country.

What do you think? Do you like this idea?

Topics: Miscellaneous | 7 Comments »


7 Responses to “How About a Lottery for Savers?”

  1. Seth Says:
    February 26th, 2010 at 8:01 am

    I actually love this idea (I loathe the lottery and everything it represents). I would actually participate in this for a year, given the interest rate was at least semi-competitive – any more details on that (which, where, etc?).

  2. Mary Kate Says:
    February 26th, 2010 at 8:51 am

    I think it’s a great idea. We do not play the lottery, even when the jackpots are huge. I don’t like the principal (get rich quick).

  3. JT Says:
    February 26th, 2010 at 9:38 am

    Glad I could help! :)

  4. Cathy @ Chief Family Officer Says:
    February 26th, 2010 at 10:21 am

    Wow, $500 is um, staggering. And since we can’t be the only family that spends $0 per year on lotteries, I think it’s safe to assume the families that actually buy tickets spend more than that. Imagine how much they would have if they just saved that money! Maybe a savings lottery would turn the tide for them :)

  5. Jade Says:
    February 26th, 2010 at 12:01 pm

    I love the idea…

    This also reminds me of a Fran Leibowitz quote “Depending on your rounding, your odds of winning the lottery are the same whether you play or not.”

  6. Dirac Says:
    February 26th, 2010 at 2:44 pm

    The lottery is simply a tax on people who are bad at math.

  7. Meg Says:
    February 26th, 2010 at 6:20 pm

    This sounds like a great alternative to the idea of the government matching savings in order to get poorer Americans to save more.

    The idea would probably be more appealing to the people it was designed to help (those “bad at math” who don’t realize that a small match now would be ultimately a better choice than the chance to win a lot later). Plus it could be structured to be a lot cheaper than matching for the taxpayers.

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