Nearly every state in the U.S. has a lottery. This is not too surprising because the lottery is a politician’s dream — a tax that is both voluntary and creates significant revenue. With such political motivation coupled with the possibility of individuals winning huge sums of money, there’s little wonder lotteries have become so prevalent. Despite their pervasiveness, lotteries do come at a cost, and those who are harmed the most are the poor.
The allure of the lottery is easily seen. Why not pay a few dollars for a chance to win millions? Could there be an easier way from rags to riches? Unfortunately, such thinking is based more on emotion than a sound understanding of probability, and tragically, it is the poor who are hurt the most. Numerous studies confirm the poor and less-educated spend far more on lottery tickets than the rich or well-educated. This basically creates a reversed tax bracket where the poor are taxed at the highest rates.
In 2010, while the economy was still recovering from the recession, lottery ticket sales increased by $1 billion. This indicates that during hard times, when people’s budgets are the tightest, they invest in something that is almost guaranteed to give them nothing in return. Had these individuals invested this money into the market during this period, they likely would have had a substantial positive return as the market recovered. Unfortunately, nearly everyone who bought lottery tickets during 2010 lost every penny spent.
The advertising for lotteries often is deceiving. For larger lotteries, the odds of winning are one in several hundred million. People have a better chance of being hit by lightning today than winning the big lottery — actually, 350 times more likely to die from lightning than win a large lottery.
But what about the winners? A study of Florida lottery winners found that they had twice the bankruptcy rate of non-winners. This is most likely due to the fact that most lottery players are poorer, less educated, and generally are less financially literate. In short, the lottery provides large sums of cash to individuals who are not likely to have the skills to manage the money properly.
Buying lottery tickets also can be addictive. This addiction can occur in the rich or poor, but the poor generally fare worse because lottery spending will likely be a larger percentage of their income. The possibility of instant wealth can drive individuals to spend more than they can afford on lottery tickets, even though they have almost no chance of winning.
Economically, lotteries are often somewhat unreliable revenue for the states that use them. Although lotteries can provide some initial increased revenue, this often doesn’t scale up as economies grow like an income or business tax would. Also, there is no guarantee that funds will be consistent or available when needed. This is particularly concerning when lottery revenue is intended to be used to fund education or other necessary programs.
According to the Census Bureau, Americans spent more than $50 billion on lottery tickets in 2011. If individuals had invested those dollars or saved them for retirement, the majority would be financially better off than they are now. Regardless of whether one resides in a state with a lottery, people should use whatever influence they have in other states to discontinue the practice. There is little justification for lotteries in our modern society, and the toll on the poor is far greater than any sum raised through lottery ticket sales.
By Richard Payne for Progress Through Business
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