As you might imagine, I'm not a big fan of the lottery. Talk about wasting your money. (FYI -- the average player nationwide spends $150 a year, according to the 1998 National Survey on Gambling. Some states have averages several times higher than that.) But if you consider it an "entertainment" expense (just like going to the movies) and get enjoyment from "just the chance to win", that's your prerogative.
But I do like unusual stories about money, and here's one from Money Central that just so happens to revolve around the lottery. It starts by asking some unusual lottery questions:
Would one more ticket improve our odds?
Is there a better set of numbers to play?
Why do hotel maids and ditch-diggers always seem to win?
Then the piece goes on to reveal a lot of misconceptions about lotteries like:
Statement: Maids and ditch-diggers always seem to win.
False. Consider already-affluent Jack Whitaker of West Virginia, who won a $314.9 million Powerball jackpot -- still the largest single U.S. lottery payoff -- on Christmas Day 2002. In fact, lottery officials in several states say big jackpots tend to bring out a more affluent crowd. But studies show that the heaviest lottery players -- the 20% of players who contribute 82% of lottery revenue -- disproportionately are low-income, minority men who have less than a college education. That has fueled a vociferous anti-lottery movement. “It really is government undercutting what government’s role should be,” which is encouraging people in financial straits to be responsible with their money, says Tom Grey of the National Coalition Against Legalized Gambling.
Statement: You’ve got to play a lot to win.
False. Spending lots of money doesn’t always do much for your chances. For instance, the odds of winning the Mega Millions are 1 in 135,145,920. Buying two tickets bumps your odds only to 2 in 135,145,920.
Statement: A lottery ticket is your best shot at riches.
False. Sadly, this isn’t the no-brainer that it should be.
In a 1999 survey by the Consumer Federation of America and financial services firm Primerica, 40% of Americans with incomes between $25,000 and $35,000 -- and nearly one-half of respondents with an income of $15,000 to $25,000 -- thought winning the lottery would give them their retirement nest egg. Overall, 27% of respondents said that their best chance to gain $500,000 in their lifetime is via a sweepstakes or lottery win, the survey said.
Consider this: If you take that $150 a year and put it into a 401(k) or IRA at age 30, you’ll have $28,000 by age 65, assuming a reasonable 8% rate of return, says Jim Holtzman, an accountant and certified financial planner with Legend Financial Advisors, in Pittsburgh. That figure doesn't even consider the added boost of contributing to a plan in which a company matches contributions.
To save that $500,000 nest egg, you'd have to tuck away a little less than $100 a month starting at age 21. What's more likely: that you can find an extra $100 a month -- or that the 1-in-several-million odds of even the smallest seven-figure jackpot suddenly tilt in your favor?
Then they come to the conclusion that I made (sort of) at the top of this piece:
In short, there are two golden rules, say those who have studied lottery players: Play only if you can afford it, and play only for fun.
“If you’re playing because you think you’re gonna get rich, then don’t play,” says Don Feeney, research director for the Minnesota State Lottery.
The article admits that you can’t noticeably improve your odds at winning a lottery, but there are some things to be aware of before you do buy:
Know the odds. Many people are surprised to learn that the odds in the big lotteries don’t change when the number of ticket-buyers surges. Your odds of winning huge in the Powerball are 1 in 120,526,770 no matter how many people play. Likewise, the Mega Millions odds remain 1 in 135,145,920. The lesson: If you’re going to throw away $5 on lottery tickets, you might want to wait until the jackpot climbs to $200 million from $10 million (although either win would be nice). One downside: A bigger jackpot means more people playing and a higher probability of having to share the prize.
Be random. “The only thing you can do, really, to give yourself a slight edge -- and I’m saying really slight here -- is that you don’t want to play numbers that are frequently played by other people,” says Don Catlin, a retired mathematics professor, author of "The Lottery Book: The Truth Behind the Numbers" and monthly math columnist for the online magazine Casino City. “I would guess that is numbers like 7, 11, 13, 19 (the first two numbers in everyone’s birth years). The reason for that is not because it’s going to increase the chance of hitting, but it will slightly increase the chance that you won’t have to share the jackpot.” Choosing birthdates also limits your options because days and months only go up to 31 and 12, respectively -- which increases your odds of having the same numbers as other players, says Feeney of the Minnesota State Lottery. The solution: Let the “Quick Pick” computer randomly generate your numbers.
Go ahead, scratch in public. “In just about every case, the scratch tickets are a better bet than the lottery,” Catlin says. Why? The lottery usually returns about half of the money to the players. By contrast, most states’ scratch games return close to 60% or more.
Beware the stale game. People often don’t realize that scratch games aren’t finished when someone wins the biggest prize; the tickets are left out until they’re all sold. That means you might be buying a ticket to a game in which there’s no chance for a juicy payday, says Chris Gudgeon, co-author of “Luck of the Draw: True-Life Tales of Lottery Winners and Losers.” Gudgeon’s advice: Avoid scratch games that have been lingering near the Slurpee machine for ages. “If you’re buying the scratch-and-wins, particularly the seasonal ones, don’t buy a Christmas one at the following Halloween,” he says. “There’s a very good chance that all of the prizes are gone.”
Watch for promotions. Rarely, a state lottery will offer promotions that are worth chasing. The goal, says Catlin, is to find a 2-for-1 deal (like a buy-one-get-one-free offer) in a game that returns more than 50% to the player. That doubles your return, to more than 100% -- which means you’ll make more, on average, than you invest. This strategy assumes, however, that you can play the game many times, so your outcomes can approach the long-term average.
If you do buy, here are some ways to protect your "investment":
Photocopy your ticket. Keep the original in a safe place, apart from the copy. Write your name on the ticket somewhere, with the words “ticket owner.” People have been awarded prizes by being able to prove that they indeed owned the destroyed ticket, says Catlin. If you buy tickets with a group of people, photocopy the tickets and give everyone a copy.
Legalize it. If you pool your tickets with others -- better coworkers than family members, says Gudgeon -- keep a written agreement signed by all participants describing any special arrangements in a safe place. Everyone should have a copy. Alter the agreement if the group changes, says Catlin. Rob Sanford, a certified financial planner, has another suggestion for groups of people who play often together: Form a legal partnership, using one of those computer legal programs, have a lawyer ensure that it’s appropriate. Then, get a Federal Employer Identification Number (FEIN) by filling out IRS form SS-4, which is available on TurboTax, and sending it in. Why? If you hit it big, the winners can each pay their taxes to the partnership. Complications (and extra gift taxes) can result when one group member claims the prize and then doles out the money.
Check the numbers. An estimated 12% of lottery prizes go unclaimed, according to the Multi-State Lottery Association. In 1998, someone forgot to claim a $34 million Lotto payout. Check your ticket.
Take candy from a baby. Beware when Grandma gives Junior a scratch ticket at Christmas. Minors aren’t supposed to buy lottery tickets or even play the lottery. The worst-case scenario: A million-dollar ticket could be rendered invalid if the minor shows up to claim the prize. That’s what would happen in Massachusetts, says Massachusetts State Lottery’s Amy Morris.
A lesser evil is that a big prize could be locked up for years. In British Columbia, if a minor is given a ticket and then shows up to claim the jackpot, the money would be retained by a public trustee until the child reaches age 19, says Alison Lester, a spokesperson for B.C. Lottery. How to avoid these problems: “Play it for him,” and claim any prize for Junior, too, says Gudgeon, a Canadian.
Now, isn't that just a bit more than you wanted to know about lotteries? ;-)
