Did you hear that in order to help pay for the United States’ recent passage of the multi-trillion dollar pork-barrel “stimulus” plan, the president just signed an executive order starting up a National Lottery with daily grand prizes of 50 million dollars? The winners will get $1 annually for 50 million years. — My variation of a very old joke
Lotteries are a tax on the stupid. Those words have been repeated so many times over the past several years that it is now cliche, but as an old junior high school history teacher of mine used to say, “it’s a true fact” nevertheless.
The other day I was talking with somebody who said that he was now redirecting $10 per week of his pay from his tax deferred retirement plan to the lottery. His reasoning was that the money he was putting into his retirement account was being lost almost as fast as he could put it in anyway, so why not take a small chance at becoming an instant millionaire?
“Yeah,” I said, “Maybe we should petition the company to offer us a Powerball option on our 401(k) plans.”
Then I got serious and told him I thought he was crazy to blow $520 playing How to Become an Instant Millionaire.
“You can’t win if you don’t play,” was his quick retort.
That may be true, but just barely.
Lotteries are big business in the United States. Currently, all but six states permit them. In 2006 alone state lotteries had combined scratcher and powerball sales totaling $52 billion.
Yes, I understand that many folks’ 401(k) accounts have been taking heavy hits lately.
I also agree that the stock market can be very irrational at times. And unlike the stock market, playing the lotto is based on objective probabilities.
But just because the markets are being irrational doesn’t mean you have to be too.
The fact is, lotteries are probably the worst investment anybody can make. The big question is why lotteries continue to be so popular given the nearly insurmountable odds that players are up against.
Let’s look at the odds for Powerball, which is played across 30 US states, the District of Columbia, and the US Virgin Islands. In Powerball, there are 59 white balls of which five are drawn, and there are 39 red balls of which a single ball is drawn. Powerball advertises that players can win in one of nine ways. Sounds good, doesn’t it?
Well, here are the odds of winning each of nine ways:
- Grand Prize (5 white balls/1 red ball) – 1 in 195,249,054
- $200,000 (5 white / 0 red) – 1 in 5,138,133
- $10,000 (4 white / 1 red) – 1 in 723,144
- $100 (4 white / 0 red) – 1 in 19,030
- $7 (3 white / 1 red) – 1 in 13,644
- $7 (3 white / 0 red) – 1 in 359
- $4 (2 white / 1 red) – 1 in 787
- $3 (1 white / 1 red) – 1 in 123
- $3 (0 white / 1 red) – 1 in 61 (odds are not 1 in 39 because of the risk you will also match a white ball)
The overall odds of winning Powerball are 1 in 35.
Anybody who regularly plays the lottery clearly doesn’t understand the sheer magnitude of the odds that they must overcome in order to win even enough to cover a luxury vacation.
Either that or they have too much money to begin with, don’t ya think?
For example, here are other interesting odds to consider:
- Being dealt a royal flush on an opening hand of poker (1 in 649,739)
- Being struck by lightning in your lifetime (1 in 30,000)
- Dying in a car accident (1 in 18,585)
- Getting a hole-in-one (1 in 5,000)
- Being audited by the IRS (1 in 100)
Comparing the numbers, one can see that Powerball players have only a slightly better chance of winning $100 than being struck by lightning.
They also have a better chance of being audited by the IRS than winning $4. Although, one could also argue that any Powerball winner that manages to take home the Grand Prize has an almost 100 percent chance of being audited.
So let’s review one more time. The chance of a lightning strike ruining your day: 1 in 30,000. The chance of becoming filthy rich playing Powerball: 1 in 195 million.
Okay, so you can’t win the lottery if you don’t play. But with the odds of becoming a millionaire one in 195 million, I think it’s more realistic to say that those who don’t play, can’t lose.
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