3 Reasons Why Playing The Lottery Is Crazy...Or Is It?

You have probably, much like many of us all, thought about the possibility of winning the lottery. Just think of all the problems you could solve with a small purchase of a lottery ticket.

A friend of mine recently won the lottery. Very few people bought lottery tickets before this event. But after it happened, a lot of people I know began buying tickets on a weekly basis. So, we at the wise investor headquarters, decided to write this to debunk a lot of myths and shed some light on the lottery from the perspective of a wise investor.

1. Logic Is Everything

Is it logically worth it to play the lottery for such a low cost to high return? Unfortunately, the answer is no- It is so not worth it that your chances of winning the 6-number jackpot on the National Lottery are 1 in 45 million.

Depending on which lottery you play, you have some low odds.To put this in perspective, each person has a one in 2,320,000 chance of being killed by lightning; a one in 3,441,325 chance of dying after coming into contact with a venomous animal or plant; and a one in 10 million chance of being struck by falling airplane parts. Most of us would not even worry about these things because there is such a low chance of them happening to us.

You have a 1 in 250 Million chance of winning the lottery. It is illogical to play the lottery, because you have a greater chance of dying in any given day, traveling to buy your ticket, than actually winning.

2. Psychology Tricks the Best of Us

Of course, someone has to win the lottery, and the only way to win it is to be in it, as the ads say. But what's the best way to be in it?

According to something called gambler’s fallacy : The rules of probability dictate that you do not increase your odds of winning the lottery by playing frequently; each time you play the lottery there is independent probability — much like a coin toss where each and every toss, regardless of the number of tosses, has a one in two probability of landing on heads. The odds stay the same, in the lottery and the coin toss, regardless of the frequency of playing. Playing every week does not make you more likely to win - as the odds are effectively reset with every draw, you are just as likely to win on your 500th try as you are on your first.

You can, however, increase your odds by purchasing more tickets for the same lottery (for one certain drawing). Keep in mind, though, that two tickets might increase your odds from one in 14 million to two in 14 million, which is not a significant improvement, statistically speaking. Someone would have to buy a lot of tickets to appreciably increase their odds of winning. Even if a person could afford to, however, he or she could not buy enough lottery tickets to guarantee a win unless he or she was the only person buying the tickets: as more tickets are collectively sold, the odds of winning inversely decrease. It is also depressingly just as likely that you will win the lottery with consecutive numbers such as 1, 2, 3, 4, 5 and 6 as it is that you will win with a colourful combination of your favourite 'lucky' numbers.

Our chances of winning the lottery are exceedingly remote, but that doesn't stop people from playing. Overall, approximately 57% of U.S. adults collectively will spend upwards of $50 billion each year in the hopes of striking it rich (Canadians spend more than $8 billion per year).

So what? The lottery is just one of those fun things that we do as a way to strike it rich, right? For some folks, that's true, but for others, often those with the least amount of money to spare, playing for these jackpots can be a serious income drainer. An overwhelming amount of lottery participants seem to reside in the lower economic classes, according to the stats.

Finance experts often say the lottery is essentially an extra tax on the poor.

3. Financial: Be a Wise Investor

Purely mathematically speaking, if you play the lottery regularly over your lifetime the money you are 'investing' just is not worth it as the chances of getting a return are so slim.

Of course, you may argue that spending a few dollars on the lottery each week is worth it for the fleeting excitement of thinking that you could in fact win big, and imagining what you might do with your winnings.

But in strict financial terms you are not doing yourself any favours by playing the lottery, and you would be much better off putting your lottery money into a savings account where a return in terms of interest is guaranteed.

If you saved that 3 dollars a week lottery money for 30 years. You would effectively have close to $10,000-$20,000  saved up depending on your investment.

The money you put aside in savings and earn interest on can then be used to pay off debts, to keep as an emergency fund, or any other use you might find it fit for - which is certainly much more beneficial than spending $15-20 a month and having nothing to show for it.

What you need to know

If you ever do win the lottery, you will want to work with your financial advisor, tax attorney and CPA to determine which option is best for you.

Many people see purchasing lottery tickets as a low-risk investment: Where else can you "invest" $3 or $5 for the opportunity to win millions of dollars? The risk to reward ratio is certainly appealing, even if the odds of winning are remarkably small. Is it better, then, to play the lottery or invest the funds? There is no one universally correct answer. Much of it depends on what money is being spent. If it is needed for retirement or the kids' college, it may make more sense to invest: A payoff is more certain down the road, even if it doesn't amount to a sexy six-figure cheque. If, however, the money is tagged for entertainment, and you would have spent it seeing the latest movie in IMAX anyway, it might be fun to take the chance. Keeping in mind, of course, that you are more likely to die from a snake bite than to ever collect.

Kind regards

The Wise Investor

Disclaimer: Pure Opinion and does not propose itself as financial advice. Always get an opinion from a professional advisor before investing your money in the lottery. Dummie! Be a wise investor.

Investopedia.com reference.