Is the Lottery a Good Idea?

Recently my daughter, Ava, turned 7.  One of her presents was a homemade gift certificate good for a Nintendo DS game at a local game store.  Ava wanted more than one game so we let her use money from her SAVINGS jar (I have discussed this before in a previous post ) to buy another game.  We then had to go next door to pick up something at Wal-Mart.  In this Wal-Mart, they had one of those machines that you could win a teddy bear by moving a claw around and then having it drop and hopefully pick one up.  It cost 50 cents per play.  Ava really wanted to try her luck at this and, even though I usually let her spend the money she earns on whatever she wants so she learns from her mistakes now rather than when she is older and these mistakes will cost much more, I just couldn’t let her do it.  First off, she probably has over 100 stuffed animals.  More importantly, I knew she would not win and, thus, would just waste this hard-earned money.  I did, however, see some good in this with a lesson I was able to teach her.

I told her playing this game was similar to adults playing the lottery.  I explained what the lottery is and told her that many people spend a lot of money on tickets hoping to strike it rich but usually end up poor.  This did get a little tricky since we have close family friends that actually won the lottery and over $1,000,000 but I did my best to convince Ava that this is definitely not the norm.  I used the following example to help her see what a waste this is.

Let’s say John spends $25 a week on lottery tickets.  That adds up to $100 a month and $1,300 a year.  John does this for 10 years.  That would be a total of $13,000.  We will be generous here and say John did not always lose.  In fact, he actually won an average of $500 a year for a total of $5,000.  Even with such success, he is still down $8,000 over these 10 years and now only has $5,000 to show for this $13,000 “investment.”

Now we will go to Jane.  Instead of playing the lottery, she decided to just hide this money under her mattress.  She will come out with the entire $13,000 and, thus, have $8,000 more than her lottery-playing friend.

Next up is Bill.  Bill is pretty cautious but decides to invest his money in a money market account that pays 2% a year.  After ten years, Bill would have almost $13,300.  Not a lot more than Jane but $300 is better than nothing plus, if there is ever a fire or break-in at Jane’s house, she’d be out of luck.

Finally we have Sally.  Sally decides to invest this money in mutual funds.  Even though the market fluctuates she averages  8% growth each year.  After 10 years, Sally will have over $18,600!  I know the stock market is somewhat of a gamble and Sally could have lost all of her money but, using history as our teacher, it is a much safer and secure way of making money compared to  picking a set of numbers.

After this conversation, I wanted to know a little more about the lottery and who plays it.  I found the following article that talked about this situation in the city of Chicago:  Illinois Lottery:  The Poor Play Moore.

It is interesting to me that the people that can least afford to play the lottery and, thus, waste money are the ones who do it the most.  Like most things in life, if it is too good to be true it probably isn’t.

So, do you think playing the lottery is a good idea?

Photo credit: vvvracer

Free Email Newsletter

The Weekly Article Newsletter Delivered Straight to Your Inbox! Get this free handy eBook that provides 25 ways to save money on your cell phone bill.