There are several reasons why lottery tickets are very bad investments. It can even be argued that lottery tickets are not investments at all and can be considered a horrible waste of money for little to no gain. At this point, some may point out that it’s one of the very few ways that the “common man or woman” can get rich. Yet, there are some important facts that argue against this line or reasoning.
i) Statistics and expected gains
An expected value or gain is a statistical concept. Suppose that there is a one in a thousand chance to win a thousand dollars and the price of buying a lottery ticket is two dollars. This means that upon purchase of a ticket, your expected or “average” winnings is about one dollar ($1000/1000) which is not even enough to cover the price of the lottery ticket. Lotteries, casinos and other forms of such gambling always create statistical odds that favor them as that is the only way they can make a profit and stay in operation.
For this reason, lottery tickets are horrible investments since you will likely make a loss. Most business ventures are positive sum games wherein they create actual products and services that benefit customers in exchange for the purchase price of the commodity. The customers and company both gain some benefit and the company proceed to share some of its own benefits with its investors. Lottery systems are negative sum games or at best zero sum games where the lottery operators gain a profit at the overall cost of those who purchase lottery tickets.
These lottery tickets also have no value whatsoever once the lottery date has passed. This is in stark contrast with many real financial investments which grant yields and dividends as long as the company or financial institution remain in operation.
ii) Places too much emphasis on ‘luck’
Good investments are a product of careful financial considerations and investigation. The astute investor thoroughly evaluates the options before him and pick an investment that has the greatest potential. After all, real wealth is simply a direct or indirect result of us applying our intellectual ability to use our natural and social environment for mutual benefit.
This is the direct opposite of purchasing lottery tickets in the hopes of getting lucky. Some may try and justify it as a kind of science whereby certain premonitions and omens can better one’s chances. In the end, all these are merely superstitions. Even if there is some small measure of truth in them, the emphasis on luck or reliance on supernatural help for such endeavors are undoubtedly harmful.
When a community counts on luck to help them, they are in many ways denying their own ability to better themselves. This is not to discount that some people are more fortunate than others. It is merely an observation that a reliance on luck may blind a person to the opportunities before him or her. These are opportunities that can be realized on one’s own efforts and determination rather than trusting in blind luck.
iii) Does not teach financial acumen
Part of the value in making carefully considered investments is the process itself. Investing is a way of life for many and the lessons and knowledge gained make them financially savvy. The insights and knowledge gained themselves are an investment and stay with the investor for life.
Compare this with the person who has more faith in lottery tickets than other investments. There are plenty of accounts of how many lottery ticket winners fail to spend their money properly. Some of them are even notorious for being poorer than they once were due to an inability to spend their money wisely.
This is a direct result of a lack of financial restrain and the acquisition of wealth in a sudden manner. With other investments, the wealth gained is done over time and due to strong financial knowledge. Warren Buffet, in particular, is much celebrated for his ability to focus on steady investments in his youth. Unfortunately, if a lottery ticket winner was given custody of such wealth abruptly, he or she may lack the experience necessary to manage the wealth in a prudent manner.
iv) Often violates a primary principle of investment
One of the most important principles of investment is to only invest what you don’t need. Many of those who commit to lottery tickets actually need the money elsewhere in their lives. Some of the more committed will purchase many lottery tickets even as their other bills accumulate. This is especially bad when the bills involved accumulate interests of their own such as is the case with credit cards.
At its most extreme, lottery tickets become a form of gambling addiction where the hope and adrenalin rush becomes an end by themselves. Due to this potential problem, lottery tickets can arguably be considered not only as a bad investment, but one that can lead to financial ruin.
Investments come in many forms, but are usually the result of hard work and a discerning mind. As has been highlighted throughout this article, lottery tickets cannot be considered a good form of investment as its disadvantages greatly outweigh its possible advantages.