Why Play The Lottery?

So the big news the last few days seemed to center around the record-breaking $48-million (estimated) dollar jackpot that was won by four recipients this past weekend.

I say this because I generally don't play the lottery. I buy a few tickets here & there, usually when the jackpot gets over 20 million, but it amounts to about twice per year that I get in line and buy a couple tickets, and like everyone else, secretly hope that my numbers are the ones that are drawn that night.

The lottery puzzles me. First of all, it is a legalized form of gambling (and I'm not here to criticize gambling), but my point is that the odds are stacked against the player. It makes little sense to me to take my hard-earned cash and blow it on something that could remotely pay off.

Now I had considered going on this tirade that the government uses the lottery as a means to ensure the working class remains poor, but my arguments would have been speculative at best, and I thought the better of ranting about it here. In a different light, the lottery gives the working class hope, that there is a possibility that we can change the stars before us.

So I began to think about how much people spend on the lottery. Certainly, us Canadians must collectively spend billions per year on lottery tickets if we can enjoy such jackpots as 30-40 million. But how much does the average person spend on the lottery?

I think lottery ticket buyers come in two types: Those who play every week, and those who play from time to time, when the jackpot hits gigantic proportions (like myself). For argument's sake, let's consider the average player who buys tickets every week.

I believe the 6/49 makes two draws per week, and one draw costs $2. The "Extra" costs an additional dollar, though this is for a separate $250,000 jackpot. Thus, if a person plays the lottery twice per week, picks two sets of numbers and the Extra, a person is gambling $10 per week. To look at it another way, the average person spends $520 per year playing the lottery.

Most people play the lottery their entire lives, hoping to win the big prize. Therefore, you could say the average person plays the lottery for about fifty years. Ten dollars per week over the course of fifty years must amount to a fair chunk of change.

So I began to consider what would happen if a person invested the same amount of money into a GIC over the course of their lifetime instead of playing the lottery? Yes, I am talking about compound interest here.

So out came the Excel spreadsheet, and I began to run some numbers. Let's just say for the sake of argument, that you start with an initial investment of $0, and the going interest rate is 3%. Now interest rates change over time, and that is beyond the scope of our argument.

If you invest $10 per week into a GIC at 3 percent, after one year you will have $527.72. You've only made $7 in interest, so it doesn't look very promising. After five years of this practice, your investment has grown to $2804.26. Still, not a lot, but a little savings nonetheless. After ten years, your investment has grown to $6062.20, which might be a few month's worth of work, or perhaps an extravagant vacation. After twenty years, your investment will have grown to $14,244.60. And after fifty years, your investment will have grown to $60,315.68 -- which is more than many of us make in a year.

This essentially means if you start investing your lottery money when you are 20, by the time you are 70, you will have a sizable nestegg in the bank -- and this is on 10 dollars per week. Most of us spend more than that on frivolous things such as tobacco, alcohol, and entertainment. It is likely the average smoker spends $50 or more per week on tobacco. Us average drinkers spend anywhere between $20 and $50 per week on our vices.

So what if the smokers quit cold turkey and took the $50 per week spent on tobacco and invested it similarly?

At the end of one year, $50 per week invested into a GIC will grow to $2638.62. After five years, your investment will have grown to $14021.28. After ten years, your investment will have grown to $30,310.98. After twenty years, your investment will have grown to $71,222.98, and after fifty years, your investment will have grown to $301, 578.42. This isn't a bad deal considering you are getting only 3 percent on your investment, and you can enjoy the fact that you will live longer because since you won't be smoking.

When you consider the possibility of variable interest rates, investing in more lucrative investments (though riskier), such as mutual funds, the stock market, real estate, you could be a wealthy person by the time you retire.

Perhaps you should think about that the next time you are buying your weekly, lottery ticket, a bottle of booze for the weekend, or your next deck of cigarettes.