Here’s a question? What has a 70% bankruptcy rate with 44% of people spending all the money within 5 years….that’s right “winning the lottery!” National Endowment for Financial Education
Why this? Why now? Because it’s lottery time with huge jackpots, which also increase Lotto, Scratchers, The Pick, and the fever heating up. It’s funny because the story about the lottery was written many years ago. It’s really an interesting moral message that the story centers around how evil conformity, following traditions or simply following the herd can be to people. It stresses that in that setting, most of us don’t think about the repercussions of our decisions, because we are like a flock of sheep blindly following each other!
With the Mega Million over $850 million and Powerball $730 Million over in the true confessions department, we will see record sales by people, often with money that really could and should be used elsewhere. Frankly, I’ll admit to being one of those, because I will play the Powerball or Mega Millions some times when it gets above $300 million. Candidly, I have found myself daydreaming of what I would do with the money if I won; it’s 5 minutes of great entertainment. (maybe with all the restrictions from Covid that’s a good thing!) I further justified my lottery purchase by rationalizing my $4 investment (ha,ha) in (2) $2 tickets, ultimately benefiting our education programs! Hey, at least it sounds good!!
It’s easy to see why people play because the largest Mega Millions won was almost $1.53 Billion. Second, behind the largest Powerball ever at $1.58B. You know the running joke, “Those winnings wouldn’t be enough to live on, but it’s a nice start!” Seriously, imagine all the great things that you could do with that money!!
However, I quickly came back down to earth realizing that the odds of winning the Mega Million jackpot lottery are 1-in-302,575,350 or to quote a line from the movie Dumb and Dumber, “so what you are saying is that I have a chance?” Furthermore, with the population over 300 million, you also probably have 2/3’s of the rest of the country buying tickets and competing against you. Heck, you have a greater chance of getting hit by lightning!
However, it very scary when you realize that 21% of people feel that the only way they can afford to retire is winning by the lottery. Then there’s the average person spending over $1,000 a year according to CNBC playing the lottery, with Americans making less than $30k a year spending as much as 13% of their income playing lottery games. Many people have nothing saved for retirement, live paycheck-to-check, or simply don’t know what to do or were ever taught about managing money.
Yet, roughly half of Americans have nothing saved for retirement, or 40% of people couldn’t put their hands on $400 in an emergency! They rather drop the money on Lottery tickets.
There are ways to use that money spent on the lottery to improve your financial well-being:
- Paying down credit card debt on time, saves interest charges & late fees
- Invest money in a 401(k) retirement plan, especially if there’s an employer match
- Make an extra mortgage payments directly against principal saves interest
- Invest in a mutual fund or set-up stock investment or dividend reinvestment plan
- Start a ROTH
- Protect against unexpected risks with insurance
- Put the money aside in your emergency fund, 3 to 6 months of monthly expenses
- Start an account for your kids and teach them about money, what a gift!!
- Donate it to charity and feel great helping others!
Buying lottery tickets once awhile isn’t the end of the world, but it’s a game, not out of financial necessity. Maybe it’s all about the 5 minutes of daydreaming about what we would do with the money, especially given that Covid has changed most people’s lives right now with all the restrictions. The lottery, Lotto, Scratchers don’t solve financial problems, and your finances could probably use the extra money to shore-up some financial holes. Ironically, according to the National Endowment for Financial Education (NEFE), 70% of Lottery winners are right back to where they started only 5 years later..why? Because they were never taught about managing money! I think there’s a lesson in all of this!!
Pat Moran is the managing director of Healthiermoney, which focuses on reshaping your financial well-being, bringing his 35 years of experience reducing risk, looking at tax efficient solutions, and helping people protect against unexpected risk. He can be reached at firstname.lastname@example.org or (602) 571-1035