should i play the lottery

Why You Should Play the Lottery (Maybe)

Max Owl
Aug 4, 2019 · 5 min read

Many have no business spending money on the lottery, but for others, it may not be a bad deal.

( Update : On February 5, 2020, I caught 4 out of 5 numbers in the CA Lottery’s Fan t asy 5 game, the only game I play, less than a dollar a day, for a payout of $335 effectively bringing my lottery spend for the year to zero. The odds of hitting 4 out of 5 in this game is 3,387 to one. I got very lucky and the payout was far from equitable to me, but as you will read below there are other good reasons to play. Here’s another interesting fact: CA Lottery paid out a total of $41,875 to 125 $335 winners. Tonight, February 8, 2020, the jackpot for hitting all 5 numbers is $322,000. The jackpot for this game doesn’t usually get this high, it’s usually around $70,000. The odds of hitting all five numbers are 575,757 to one. Do the math. Fantasy 5 has the best odds of any CA lottery game as far as I know.)

Lottery odds stink. Your money is better spent elsewhere. Gambling is a moral hazard that can become an addiction. Lotteries tend to suck money from vulnerable low-income people. All true. Still, I play the lottery and maybe you should too.

That said if you or your family currently can’t afford to lose $1 a day, or you know you have a problem with gambling and a $1 a day bet will grow to more than you can afford to lose, stop reading. Go away, go away, go away! You are not the audience for this high-risk, lose it all with no tangible returns, way to spend your money.

I’ve been playing the California Fantasy 5 game for about 2 years. I’ve never won big. Altogether my winnings have been less than $100 and I’m including the free ticket wins. That’s about a $600 loss because there are days I don’t play because I’m too lazy or too busy to go renew my 12-day ticket. So, how do I justify “throwing away” over $300 a year?

Five percent average return on investment is, according to Thomas Piketty in Capital in the Twenty-First Century, damn good . The guy did the math, over and over and over, real estate, services, manufacturing, if over time your investment in any of these yields about 5% you’ve no right to expect more. The return will be higher during some periods, lower during others. If you time the investment perfectly, or some other factor goes your way, you might do better. Or, bad luck, you may do zero. Things go way bad; you can even lose everything invested.

For example, CalPERS, a $348.7 billion pension fund currently has a 10-year return of 7.9%. It’s 2018 returns were negative 3.9%, bringing its 5-year return of 5.1%.

Bank deposits and money market funds are safe, but they’re currently paying next to nothing. For those of us that lack great sums to invest, our homes are our best investments, but after the Great Recession, we now understand even this colossal favorite is not fail-safe.

I once asked my financial planner how to invest $10,000 to at least keep up with inflation, which at the time was running about 3% per year, one percent higher than the Federal Bank target rate. He did not have a safe, principle not at-risk investment that could do it. Inflation is incredibly low right now, about 1.5%. You can get a minimum $1,000, 14-month CD that yields 2.2%. Not bad, but not 5%.

No, I’m not hawking lottery games as an investment. They are not. And I’m not saying you should not save in traditional saving vehicles just because interest rates are low. I’m establishing a point of reference. It’s very difficult for people with relatively small amounts of money to invest it safely and achieve a 5% return over a 5- or 10-year period.

Further, the way riskier investments work, I bet that you, like me, have lost thousands of dollars in 401K and other saving plans that were invested in stocks and bonds. It just goes with the territory, right? The market goes up and down. We’re not in their playing every day, we’re in for the long-term. Unfortunately, many of us have and will end up on the short end when our long-term is over and we need our cash. Just, saying.

Consider this, nearly every large investor makes high-risk investments, real gambles. They invest in small start-ups or near start-ups that, odds are, will fail. They don’t expect to get any of this money back. They do this with a very small percentage of their assets, usually much less than 5%, money they can afford to lose. Yep, up to 5% of their cash basically “thrown away.” Why? Because when they do win the payoffs are phenomenal, 5, 10, a hundred, a thousand times or more on their “investment.” These bets boost normal returns of 2–10 percent into the stratosphere.

Don’t get too excited. Odds are you are never going to win a big lottery pot. And by big, I mean $70,000, not millions of dollars, but you could. Any combination of numbers in lotto games is as good as any other in any single draw. The numbers 1,2,3,4,5 have the same odds as any other combination. When was the last time you heard 1,2,3,4,5 hit?

As I mentioned, I play the California Lottery’s Fantasy 5. The overall odds of winning any prize in Fantasy 5 are about 1 in 9, a free ticket worth a dollar, and the odds of winning the jackpot, usually around $70,000, are about 1 in 576 thousand, compared to PowerBall’s 1 in 292,201,338.

But winning is not everything. 95 cents of every dollar I play goes back to the community in the form of contributions to public schools and colleges, player prizes and retail compensation. That magic 5% is what it costs California to run the game. Casino’s take a lot more. So, I consider my $1 a day bet a self-imposed tax. A tax that doubles as a high-risk investment in a retail investing environment where I can’t even safely get 5%. And it’s fun, and it gives me a little hope, and I can afford to lose the money that’s going to good use. Check back with me in a year or five, maybe I’ll change my mind. Like buying lattes every day, if it gives you pleasure, and unlike lattes, possibility, it may not be such a bad purchase after all.

(Update: On February 5, 2020, I caught 4 out of 5 numbers in the CA Lottery’s Fantasy 5 game, the only game I play, less than a dollar a day, for a payout of $335 effectively bringing my lottery…