Lotteries have a long history. Moses was instructed in the Old Testament to divide land by drawing lots, and Roman emperors used them to give away slaves and property. Today, Americans spend more than $80 billion a year on them. The premise is simple: the more tickets you buy, the better your chance of winning. But is this really the best way to invest your money? In this week’s episode of Explained, we dig into the truth behind lottery tickets and the ugly underbelly that lurks beneath them.
Lottery prizes can be anything from cash to goods or services. They can also be donated to charitable causes. The prize amounts are usually small, and the odds of winning are very high. That’s why they appeal to people who want a large financial gain for a small risk. Lotteries are popular with state governments, which use them to raise money for a variety of projects. This is done through public and private lotteries. Public lotteries are usually open to everyone and can be a great way to raise funds for a project or charity. Private lotteries are usually limited to friends and family.
A big problem with lotteries is that they can be addictive. The ad campaigns, the look of the tickets, and even the math behind them are designed to keep you coming back for more. This is nothing new; it’s similar to the strategies that tobacco companies and video-game manufacturers employ. It’s just not normally done under the auspices of the government.
Whether it’s buying a Powerball ticket at the check-cashing place or scratching off a fifty-dollar winner on a Snickers bar, people spend billions on tickets each year. They could be saving for retirement or their children’s college tuition, but instead they are throwing away money on a tiny bit of hope.
Cohen argues that lotteries are “budgetary miracles, the chance for states to make revenue appear seemingly out of thin air.” This began in the nineteen-sixties when a growth in population and inflation pushed states to run out of ways to balance their budgets. They needed to increase taxes or cut services—both of which would have been very unpopular with voters. But with a little help from the king of gambling, lotteries seemed to offer a way to maintain services without hiking taxes.
Lottery profits are not just from the prizes themselves but also from a significant amount of ticket sales to low-income, less educated people. These people are more likely to play, and they contribute disproportionately to the total national spending on lotteries. They may also be foregoing other types of savings, like investing in their own businesses or paying down debt. This can end up costing the taxpayers in the long run. This is why it’s important to understand the hidden costs of lottery participation.