We Bought Lottery Tickets… Here’s Why.

Over the last few days, I’ve read a lot of articles about the lottery. I’m sure you’ve read your share of Powerball articles too, right?

I’ve learned that personal finance bloggers HATE the lottery. They say that “hate” is a strong word, but it seems applicable here.

Here’s a great article summing up the hate: The Deception of a Billion Dollar Jackpot. Here are two of my favorite quotes from that:

“You are 12 times more likely to die in a car crash while getting the ticket as you are to pick all six Powerball numbers. Skip the lottery, save $2, save your life.”

and

“Are there alternatives to losing the lottery? Fortunately, there are. One alternative is to light $2 on fire (without burning down your house) and at least enjoy some light and warmth from the fleeting flame.”

Let’s review the basics

We all know we aren’t really getting 1.5 billion. By taking the lump sum, you are going to be left with around 930 million.

Before I go any further, let’s cover that lump sum choice. I was a big proponent of not taking the lump sum… and taking the money over 30 years instead. However, I saw that The Today Show a few day ago reported that if you die Powerball can weasel out paying the money to your estate. I’m seeing a lot of people source Powerball’s official website that the annuity can be passed on on death. With such conflicting information, I’d suggest that winners consult their lawyers.

If Powerball has to pay out the annuity to the estate, then that’s the way to go. I’ll take $50M each year over 30 years. Even if it wasn’t a huge jackpot like the current one, getting the money over 30 years solves a lot of problems. It prevents you from overspending. It gives you a fresh money start every year. You can keep all the moochers away by saying, “Hey, I only got to keep $25M after taxes.” Maybe they’ll forget next year.

If Powerball isn’t paying the annuity on death, then the way to go is to take the 930 million right away. You’ll probably be left with around $500 million after federal and state taxes. With some portion of that money, you’re going to want to buy an annuity or something that guarantees that you’ll never be broke. The idea here is hide money from yourself, so you don’t blow it.

What does a Huge Jackpot Buy?

We know that winning the Powerball won’t solve your problems.

Mark Cuban has some sound advice. Winning won’t make happier unless you were happy already. Also tell your friends no to requests for money. In his words, “No one needs 100k for anything. Anyone who asks is not your friend.”

Unfortunately, Cuban has some advice that I don’t agree with: “You don’t become a smart investor when you win the lottery. Don’t make investments. You can put it in the bank and live comfortably. Forever. You will sleep a lot better knowing you won’t lose money.”

With a huge jackpot like this, you can put 20% in the bank and live comfortably… forever. I would invest the majority of the money everywhere – stocks (domestic and foreign), bonds, REITs, commodities… etc. Honestly, I’ll sleep best knowing that I have all the money I ever need in the bank and that if something should ever happen to that bank (it’s beyond the FDIC insurance level) or the banking system, I’ve got a bunch of other things to fall back on.

But Why Did We Buy Lottery Tickets?

As the saying goes, “The lottery is a tax on those who are bad at math.” I like to consider myself pretty good with math, so why would we choose to pay this tax?

I should explain that it is my wife who buys the tickets. If it were up to me, I wouldn’t go out of my way. However, I’m using “we” here, because it comes from the family budget.

I’m not a supporter of the lottery, but my wife makes a great point. She explains it better than me, but her argument goes something like this:

“If you don’t play your chances are ‘goose egg.’ You don’t want to be ‘goose egg.’ Goose egg.”

She has a great smile with the last “goose egg.” I’m laughing at the way she says it, but I manage to make the point that I’d rather have an actual goose egg than a lottery ticket… as that is surely more valuable. (I can imagine Justin from Root of Good having all sorts of fun with goose eggs instead of lighting money on fire.)

It’s that smile with last “goose egg” that makes it all worthwhile. We have a great laugh about goose eggs. Our annual budget is around $20-30 on the rare occasions that the jackpot gets really high.

By any math, a laugh over goose eggs is a lot better than arguing over such petty cash.