Don’t Pay “The Stupid Tax”

Don't get caught up in the hype.

“I don’t bet on the lottery, I bet on myself instead”- A Wise Man

Lotteries are often labeled “the stupid tax” and for good reason. The odds of winning the jackpot are so astronomically stacked against the player that any rational person would completely avoid playing it. In Canada and the United States the two most popular lotteries are the Lotto Max and Powerball draws. The odds of winning Lotto Max are 1 in 30 Million while the odds of winning Powerball are 1 in 150 million. To put these odds for in perspective, you are more likely to:

• Win an Academy Award.
• Be Hit By Lightning Multiple Times.
• Hit two holes in one in a round of golf.
• Become a saint.
• Die on your drive to actually purchase the ticket.

The organizations that run these games thrive on the people who fail to understand these odds. In fact, 80% of all revenue comes from the poorer working class that sees these draws as their only way out of their daily grind. These people become regular customers of these games and get constantly caught up in the hype around the jackpots. Unfortunately, the media adds to this problem by regularly featuring stories in the newspaper and on TV about the “average Joes” who came from a life of nothing and now live in financial bliss. Next time you come across one of these stories try to find one on the millions of other people who lost their money on the game.

The best way to avoid falling into the trap of being a regular buyer is to instead think about how spending money on these “small” tickets adds up over time:

This chart shows the financial impact of playing the lottery at a pace of buying $5 dollar tickets every week over 1, 15, and 50 years.

Now that we have taken a look at the amount of money spent on these tickets, look at the opportunity cost of what could have been saved over this period of time:

This chart shows the savings of a person who places $5 a week  into a savings account with an average interest rate of 3% a year over the same time period:

Just by abstaining from the lottery, the person who chooses to save their money  is able to have a 33095.48 greater net wealth compared to the regular lottery ticket buyer.

It should be clear by now that lotteries should be avoided completely if you plan to build your wealth. Put your hard earned money into a savings account or an index fund, the odds of success are much better.

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