There is a convenience store next to our office in NYC that sells lottery tickets like hot cakes.  Anyway, the other day we walked in to get a snack & while waiting on line, there was another customer requesting about $20 worth of lottery tickets.  During the transaction, the clerk at the cash register commented, “same as last week?”  This really got us thinking.  The customer probably spends at least $1,100 a year ($20 times 52 weeks) on lottery tickets.  That’s crazy.  Let’s analyze why.

Can I Win?
Of course you can win, but the odds are ridiculously out of your favor.  We understand that if you are “feeling lucky” you may want to splurge for some lottery tickets during a Mega Drawing of say $300 million sponsored by multiple states.  It’s fine to “play” every once and awhile.  That brings us to our next point – the Lottery is a game NOT an investment.  Some people feel as though if they “invest” enough of their time playing the lottery like our friend at the convenience store, they are bound to win.  People are also fixated on playing the same numbers each week.  But, the truth is, your odds of winning the lottery are not dependent on how often you pick the same numbers.  Your odds would go up slightly for purchasing say more than 1 ticket but it is much less than a thousandth of a percent.  On the other hand, the odds of using that same money to pay off credit card debt bills, student loans, purchasing a certificate of deposit AND financial benefiting from it are 100%.

Does Anyone Else Benefit Besides the Lucky Winner?
Actually, yes and it does go to some social good causes.  On average about 30% of the proceeds from State Lottery sales goes towards educational programs such as rebuilding schools & improving the overall school environment for students.

The majority or 59% of the proceeds goes towards paying the lucky winners.  As a side note, the lucky winners don’t get to keep all of their winnings – they face a hefty tax bill.  Let’s say by some miracle you win $10 million in a recent lottery drawing.  Your tax rate would likely jump to 39.6% and with state taxes, your overall tax rate could be as high as 50%.  Basically, you would be giving the government back about 5 million of your winnings.  Hmmm, that’s interesting.  If you are giving back 40% to 50% of your lottery winnings, then that 59% prize money figure we mentioned earlier is misleading.  After taxes, that figure is really closer to 30% to 40%.

ALLOCATION OF LOTTERY SALES BY LARGEST 14 STATES

Back to our analysis in greater detail.  We reviewed the state lottery sales for the 14 largest states in America since it accounts for 195 million people or approximately two-thirds of the population.  In total, those 14 states raised 37 billion in lottery sales last year, of which $11 billion went towards education.  In simpler terms, next time you purchase a $2 lottery ticket, 60 cents goes towards your State’s school programs.

Back to the original question, “Is buying a lottery ticket exactly like burning your money on fire?  No, some of that money is going to be used for social good purposes but if you are not in a position to make a donation – focus on your own finances.

More Personal Finance Questions?
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