Lottery vs. Stock Market: Aren’t They Both Risky?

January 8, 2010

With the media broadcasting the faces of names of this week’s Mega Millions lottery jackpot winners at every opportunity, I believe today is an appropriate time to address a question (though sometimes hidden as a statement) I’ve heard many times.

When talking about the importance of saving for emergencies and investing for long-term goals (including retirement), I’ve heard many people state that investing in the stock market is so risky that they believe spending money on a lottery ticket is a better investment.

First of all, let’s clarify the MISNOMER before addressing the LACK OF REASONING:

Investing in the stock market has to do with RISK.

Buying a lottery ticket has to do with CHANCE.

CHANCE IS NOT THE SAME AS RISK.

You may be able to increase chance, but you can NEVER impact it.

By the choices we make, we can have a significant impact on the outcome of risky situations, including investing in the stock market. We choose the timing, the stocks or funds, the amounts invested, and the timing of when we withdraw the funds. Each choice (which we can improve with experience and education) has a direct impact on how much our investment grows or shrinks.

We have virtually NO impact on situations involving chance. No matter what is written in books meant to take more money from lottery players’ wallets, the only way to improve one’s chances in the lottery is to continuously buy more lottery tickets.

Getting you to buy more lottery tickets is exactly what the government, schools administrators, the lottery corporation, the media, and even convenience stores want. After all, just here in Idaho, here’s what these organizations received in profit from the Idaho Lottery in 2010 alone:

  1. State Government (public schools, permanent building fund, and Idaho Bond Levy Equalization Fund): $35,000,000 ($35 Million)
  2. Retailers that sell the tickets: $8,400,000 ($8.4 Million)
  3. The Idaho Lottery corporation that administers the products: $4,200,000 ($4.2 Million)
  4. Media outlets, such as television and radio stations, that collect marketing and advertising fees for promoting the lottery: $2,800,000 ($2.8 Million)

These are probably pretty typical percentages for state lotteries around the country. Not one of these organizations, that collectively touch the lives of every citizen in the state, has a financial incentive to curb lottery ticket purchases. It’s just too easy to say, “Play responsibly” and then turn back to collecting their share of the profits. They’re not easy to find, but some media outlets (particularly newspapers and financial education sites) have done reports on former lottery winners and what their lives are like now. See http://on-msn.com/gmqjtKhttp://abcn.ws/eHXkzY, and http://read.bi/hUTY7M.

Rather than equating the lottery with stock market investing (which, for anyone with the patience and skill of delaying gratification, is almost a sure bet to receiving more money in the long run than you invest), let’s rather put it in terms of numbers:

THE LOTTERY IS A TAX ON PEOPLE WHO ARE BAD AT MATH!!!

There you have it. The reality is that people overwhelmingly lose money playing the lottery. Even “winners” of the $1,000 secondary prizes usually spend that much in tickets every year or two, so they don’t even break even.

Compare the odds of winning the Powerball (http://www.powerball.com/powerball/pb_prizes.asp) and the National Weather Services’ statistics on annual lightning strike deaths and injuries (www.lightningsafety.noaa.gov/medical.htm), then figure out your annual likelihood of being struck by lightning in a country of 300,000,000 residents.

If you have trouble figuring out that your chances of winning the Powerball are 1 in 195 million for one-time players (or 1 in 3.7 million annually for weekly one-ticket players), stay away from buying lottery tickets based solely upon the principle cited above.

Statistics say that about 540 in 300,000,000 Americans are injured each year by lightning strikes (about 60 additional are killed). That’s an annual statistic of about 1 in 555,555 Americans. That means that left up to chance, you are about as likely to be injured by lightning SEVEN times in one year as you are to win the Powerball jackpot playing one ticket a week for a year.

But that’s not a fair comparison. You can greatly minimize the likelihood of being struck by lightning by staying indoors during storms. Being struck by lightning is a risk, not a chance.

So, the next time you’ve been struck by lightning six times in a twelve-month period, perhaps then you’ll should feel lucky enough to play the lottery. Otherwise, keep your money and place it into a slightly risky but exponentially more rewarding investment, and you’ll end up much better off financially in the long run.

Have a fantastic day!

Todd

Todd Christensen
Director of Education
www.NationalFinancialEducationCenter.org
Facebook: MoneyDay2Day
Twitter: Day2DayMoney

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Published in: on January 7, 2011 at 1:35 pm  Leave a Comment  
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