Winning the lottery may not be all it’s cracked up to be. Statistics show 70% of lottery winners spend all of their fortune within a few years. Basically, if you didn’t know how to handle your money well before playing the lottery, you don’t magically get a visit from the Personal Finance Fairy who blesses you with mad money management skills overnight. Most people who play the lottery regularly view their lottery spending habit as an investment for a chance to live happily ever after. Their views on money are skewed, and even if they win, the sudden windfall can rather quickly turn into money lost.
In report after report, studies have found the majority of lottery winners actually win enough cash to get out of debt, yet wind up oweing more than before they hit it big after a series of bad financial decisions. Most aren’t prepared to manage such a large sum of money and are overwhelmed by the emotions that go along with a suddenly padded bank account.
Some consumers take the lottery very seriously, and view it as a viable means to financial freedom. Take Angelo and Mario Gallina, who spent $20 every day on tickets since the lottery began back in 1985, totaling over $124,000 in tickets before they won big – twice in the same day – at the age of 78. Like the lure of other financial schemes, the lottery proves to be an enticing way to blow extra cash, but the real problem occurs when consumers choose purchasing lottery tickets over paying for necessities or paying off debts.
Of course, there are a few exceptions, like Brad Duke, a recent Power Ball winner who took home about $85 million total in lottery winnings. He played it smart, and hired a team of financial advisors to help achieve a goal of becoming a billionaire by investing most of his winnings. But prior to his winning lottery ticket, Brad already managed five Gold’s Gyms in Idaho, meaning he most likely had a fair knowledge of how to handle his personal finances, and those of the businesses he worked for.
Beating the Lottery Code
While it’s very Davicini-Code-esque to believe there’s a secret to winning the lottery, the chances of you being the one to find that code are slim to none. Jonah Lehrer, author of How We Decide, posted an interesting piece at Wired Magazine about how a mathematician beat the lottery scratch-off game, and we’ve read about other reports of those who’ve cracked the lottery code and won big, but the truth is, these are exceptional rarities. The average lottery player does not have the mathematical skills necessary to uncover such patterns, unless you have a PhD in statistics.
The Worst Personal Finance Advice
In a post by Felix Salmon at Rueters, he slammed a recent (and since pulled) video on CNN Money that suggested consumers use the lottery as a personal finance management tool. Salmon entitled his critique as The Worst Personal-Finance Video Ever.
Indeed, many businesses are getting in on the lottery winning fever and offering “special services” to help consumers crack the lottery code and increase their chances of winning it big (we’re not willing to link to such services, though).
The Low-Down on the Lottery
The final advice on playing the lottery is to do so in moderation and to play responsibly, but only if you’re already personally responsible with your current finances. If you can’t manage your money now, you’re not likely to be able to handle a windfall of lottery earnings wisely, so save your time and money.
What about you? Do you play the lottery regularly? What do you think about using lottery tickets as a personal finance tool?
David’s Note: I don’t play the lottery regularly, but I must admit that there’s a lottery ticket in my wallet as I’m typing this. I only buy if I happen to get gas and see that the jackpot is $100 million+, which is about 3 times a year at $2 each. I don’t plan on winning, though the occasional daydream opportunity is fun. I see it as an entertainment expense. Unfortunately, too many people view the purchase as something other than spending. Don’t you be one of them.