Ray Otero cannot buy a break. For the past three years, he’s spent $500 to $700 a week playing the lottery, but he’s only won big a few times: $1,000 once and $2,000 twice. Still he keeps playing. He’s sure his luck is bound to change.

Otero’s story, told in a recent New York Times article, is simultaneously funny, poignant, and exasperating. This New York City building superintendent simply wants the “easy life” for his family. He wants to find the money to move back home to Puerto Rico.

So why doesn’t he save the money from working? Because working is for suckers:

Working is for poor uneducated men — a sucker’s game, [Otero] said, where one must run increasingly fast to keep one’s place in line. “You’re making money on the one side and spending it on the other,” he said. “If all you’re doing is working, you’re never going to win.”

And so he’s poured his money into the lottery, looking for his chance to get rich quickly. So far it hasn’t worked. To make matters worse, his friend and neighbor, a doorman named Richie Randazzo, won five million dollars after only spending $30 a week on tickets. “It really isn’t fair,” Mr. Otero said. But what Mr. Otero doesn’t realize is that winning the lottery has nothing to do with luck.

Against all odds
My youngest brother, Tony, used to play the lottery. One day I had to get something out of his car, and I was shocked at the hundreds of scratch-off tickets tucked into every nook and cranny.

“Tony,” I’d said. “Why do you do this? You’re wasting your money.”

“No, I’m not,” he said. “I’ve pretty much broken even on the lottery. I’ve made as much as I’ve spent.”

I knew that this was highly improbable, but didn’t see any sense in arguing. Sure, a newcomer to playing the lottery might be able to claim she’s broken even because she’s only spent about $30 total on it, but has won fifty bucks. But the longer anyone plays, the more likely they are to be a net loser. The longer a person plays, the bigger loser they become.

Just for kicks, I looked through the New York state lottery web site. There are a variety of games offered. None of them have encouraging odds.

  • The $1 scratch-off games offer odds of one in five. On average, you’d have to spend $5 to win anything, and even then you’re far more likely to win a buck or two than anything else.
  • The more expensive scratch-off games ($5, $10, $20) have better odds (up to one winner in every 3.5 tickets), but more gradual payoffs. That is, it’s more difficult to win a big prize.
  • The lottery drawings have even worse odds. The daily Take Five game, for example, has odds of about one in ten. But the base prize is just a free lottery ticket. The odds of winning money are one in 100!

There’s no question: playing the lottery as a strategy to gain money is a fool’s game. Play the lottery for fun if you want, but don’t do it because you think it’s going to help your financial situation. The easiest way to win the lottery is not to play.

A sure thing
If you really want to improve your finances, do something boring with your money. Put it in a savings account. Invest it in the stock market. (Hell, loan it to your brother-in-law. You’re less likely to lose the money with him than with the lottery.)

If you really want to win with your money, take advantage of the extraordinary power of compound interest. If you don’t have a Roth IRA, start one. Use it to buy indexed mutual funds. If that sounds too complicated for you, then open a savings account.

While it’s true that 3% isn’t a huge return on your money, it’s far more than the 80% loss you can expect every time you buy a lottery ticket. (See the comments for a more rigorous mathematical explanation of the actual expected returns.) If Mr. Otero would put $30,000 a year into into a savings account, he’d have about $164,000 after five years. He’d have over $350,000 after ten years. I suspect that’s plenty of money for him to fulfill his dream of moving back to Puerto Rico.

[The New York Times: Thousands later, he sees lottery's cruelty close up, via My Open Wallet — image by midweekpost]