How to win the lottery

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.

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Tabs at Levnow
Tabs at Levnow
12 years ago

The lottery is gambling any way you look at it, but $700 a week that is an addiction.

-Tabs

Solomon@ThingsI'mGratefulFor
[email protected]'mGratefulFor
12 years ago

I once heard the lottery described as a tax on fools. I’m not sure I’d go as far as to say that, but some people apparently don’t learn from their mistakes.

andrew
andrew
12 years ago

Saving?

B-O-R-I-N-G.

Monkey Monk
Monkey Monk
12 years ago

Lotteries are really just a form of state taxation since this is often where the extra money goes . . . it just happens to be voluntary.

I’m glad people like Ray Otero are more than willing to help out by paying additional these taxes so the rest of us don’t.

Christine
Christine
12 years ago

Just thought I’d share a little story.

One of my old teachers used to caution us against the lottery for another reason. Studies have shown that, on average, folks who have won the lottery are much less happy than the average joe.

So, the moral of the story? Don’t play the lottery, it’s too dangerous. You might win.

Victor
Victor
12 years ago

Good point with saying “Play the lottery for fun if you want” as that makes it as acceptable as buying a candy bar once in a while.

To really make money, we should make it illegal to throw cigarettes out of the window of a car. Charge each smoking loser $50 bucks and we can reduce the national debt within a decade! =)

john
john
8 years ago
Reply to  Victor

die in a fire

Ashley
Ashley
8 years ago
Reply to  Victor

Actually I totally agree.. plus it will help the world go green. Do you know how many animals choke on things we chunk out of cars or in our oceans.. How would you like it if you were just walking down the road and all of a sudden a giant coke can ring placed itself around your neck and you couldn’t get it off cause your arms don’t reach? You’d just die.. Help the world be a better placeand GO GREEN!

court
court
6 years ago
Reply to  Victor

Love the idea of large fines for people who throw cigarette butts out of their car windows! If they don’t want to deal with their own ciggy butts in your car, what makes them think anyone else wants to see that on the side of the road? I don’t care if adults smoke in their cars, but littering is gross, especially with something toxic and generally disgusting (smelly, saliva coated, full of toxins that leach into the water supply, etc). Littering fines should be high enough to really hurt…maybe then they’ll get taken seriously. (Illegal dumping here costs “only” a… Read more »

MissPinkKate
MissPinkKate
12 years ago

That story was really amazing. With that kind of dedication to scrapping money to together, this guy could really amass a large lump of cash. And he’s throwing it all away!

Daniel
Daniel
12 years ago

when I was in college, I worked in a gas station for awhile. We had a lot of regulars come in and spend lots of money every night on the lottery. The daily pick 3 was the most popular. However, once a woman came in and bought $55 worth of tickets on a game that only paid out $50 for a win. That was sad. That being said, they say that the lottery is a tax on people who can’t do math but I did some math. If I play mega millions twice a week for 30 years, that is… Read more »

Tyler
Tyler
8 years ago
Reply to  Daniel

Agreed! If its not hurting anybody and you’re not starving your family; then whats a few bucks here and there for the fun of the “maybe”. I don’t play regularly, lately (because I’ve got a raise and been making more money) I’ve been playing more often than usual. I have a decent paying full-time job and have a savings for a wedding (and a roth IRA) but occasionally when I do a side job I’ll take $20 on the weekend and buy some scratch-offs and quick picks. Occasionally I’ve one to break even, sometimes its a total loss, other times… Read more »

Sarah
Sarah
12 years ago

Something else to think about when purchasing lottery tickets:

http://www.cbc.ca/canada/story/2008/07/30/lottery-family.html

Here in Ontario, the OLGC now requires a verbal and visual announcement of the winnings because cashiers were telling customers they didn’t win when they actually did, and keeping the money.

seeger
seeger
12 years ago

i play the lottery every week. $2 a week. I certainly don’t use it as an investment strategy, though i wouldn’t mind it working out as such…

@Christine
Studies show a lot of things, but i don’t necessarily buy into a meaningful correlation between winning the lottery & unhappiness… Playing the lottery & being discontent, perhaps, but that’s something else.

(Also, a lot of state lotteries put the money toward a variety of useful causes… i think of it as a foolish hope tax)

Bradley
Bradley
8 years ago
Reply to  seeger

I actually know these people that had a Fruit and Veg stand in a market in London, and they won the lottery for some huge amount and moved to Mallorca (Balearics) which is where I met them. At first they were happy because they had a happy little family with two daughters and a mountain of cash. by and by it all went to hell….divorced, alcoholics,slutty spoilt daughters, no friends. I am sure as anything that they would be much happier, better people if they were still selling fruit and veg of a stall somewhere in London. Not to mention… Read more »

Jim
Jim
12 years ago

I consider the lottery to be for entertainment purposes only. Spending $1 on a ticket once in a while just for fun isn’t a problem. Just as long as you realize your chances of winning are next to nothing and you’re only doing it for the fun of it. @Victor, “we should make it illegal to throw cigarettes out of the window of a car” Where I live it is illegal and I think theres an extra fine if you do it in a wooded area where it could cause a forest fire. It depends on the local/state laws though,… Read more »

Harm
Harm
12 years ago

And then if you DO win, they tax the
winnings….figuring you won’t mind
then. Yeah, it’s easy to look at people
like Mr. Otero as dummies, but it’s the
lottery administrations who are the
predators. Have you seen some of the ads?
Vultures…..

J.D.
J.D.
12 years ago

Harm, you make a great point about taxes. I thought about that as I was falling asleep last night, but didn’t remember again til you mentioned it. That makes your lottery winnings even less than you expect them to be.

So, you’re taking $30,000 of after-tax money (let’s say $40,000 pre-tax), and converting it into maybe $2,000 a year of winnings, which, when taxed, are only $1,500. Not a good deal.

Kittie
Kittie
12 years ago

My brother-in-law has all these books on how to win the lottery. They’re mostly tables of numbers that haven’t come up in a while. He assumes that means those numbers must be due to appear, and he spends a lot of money that he doesn’t have. I teach an undergraduate statistics course, and I like to use him as an example of Bayesian reasoning gone astray, where you can be misled by choosing too strong a prior. (His “system” for winning at roulette would make you cry – as one might expect, it involves very little winning.) On the other… Read more »

Steve
Steve
12 years ago

I’m not aware of studies showing lottery winners being *un*happier than non winners, but I have personally read at least one study showing they aren’t any happier than non winners. (The study actually showed them as slightly happier, but not enough to be statistically significant.) So, I think the story that they’re unhappier is an urban legend.

On the other hand, I have read a long article about Jack Whittaker, who won a $300 million lottery and it ruined his life and the lives of pretty much everyone around him.

Sam
Sam
12 years ago

Playing the lottery is a voluntary tax for people who are not very good at math. Sadly, most people who play can’t afford to do so.

margaret
margaret
12 years ago

I’ve heard people on the subway discussing their lottery strategies the same way wall street traders discuss their trading strategies. It makes me sad — the lottery players have probably overheard wall street traders and they think they are just doing the same thing. Frankly I don’t think they are too far off.

Also, Mr. Otero probably would not have the first clue how to go about buying stocks, and the lottery ticket is available right there at the corner deli.

Deepa
Deepa
12 years ago

Dave Ramsey says that lottery is a tax on the poor and people who can’t do math. I agree with him.
Also isn’t it amazing how some lottery winners seem to lose all that money in a very short time. Maybe it is because they are bad at math that they go through their winnings so quickly?

Here is a article on msnmoney about lottery winners who’ve lost all their money. http://articles.moneycentral.msn.com/SavingandDebt/SaveMoney/8lotteryWinnersWhoLostTheirMillions.aspx

Steven Fisher
Steven Fisher
12 years ago

I’m way ahead on the lottery. I got that way by winning $300 the second time I played and not playing since. What’d be the point?

John
John
12 years ago

I realized this goes completely against the whole “Get Rich Slowly” idea, but what if you’re doing all that stuff and now you’re looking for something you can do on top of it that could move along a little faster? Right now I contribute to my 401k, Roth IRA and a House fund. But it’s depressing to watch them get horrific returns (or at least returns that follow the market index in this bear time). What should I invest in that will have a lot of risk but could have the potential for a huge payout? I’m tired of the… Read more »

Jeff
Jeff
12 years ago

I’m reminded of a quote from the old movie Wargames.

A strange game. The only winning move is not to play.

J.D.
J.D.
12 years ago

@John ESI Money If you’re willing to (and can afford to) lose a portion of your capital, I’d say take a small percentage (maybe 5%) and put it into some sort of high-risk investment. I don’t know anything about the commodities market, but maybe that’s an approach. Or find a beat-up financial stock. Maybe Washington Mutual? Take your “play money” and put it into that and hope for a big return, but understand that you may lose it all. That’d be my approach, anyhow. Right now, I’m willing to play this slow game, and so I’m going to stick to… Read more »

Harm
Harm
12 years ago

Kittie, very true about the deductibility
of gambling losses, I’d forgotten….in fact,
thinking along those lines (and if you have
a slightly larcenous mind, LoL) if you DO
ever win, you can spend part of your day
as the track or the corner convenience
store collecting discarded losing tickets.
One could make a case that they are worth
a quarter or so each, rotfl…

AncientPC
AncientPC
12 years ago

I call the lottery a poor tax, but it really is a dumb tax. Playing $1/week is cheap entertainment to dream about what you do if you won, $700/wk is an addiction.

There are mathematically advantageous games for people to play, but they require hard work, a large bankroll, discipline, and studying / learning the game.

@Kittie: Gambling was my sole form of income for a few years. Tax law states that you must pay taxes on GROSS wins and then deduct losses instead of paying taxes on net profit / loss. Definitely a big screw over . . .

Gwyn
Gwyn
12 years ago

Mathematically speaking, playing the lottery every week is completely idiotic. As JD pointed out, this guarantees that your chance of losing all of your money will be 100%. In order to maximise your chances at the lottery, you should invest all of the money you ever intend to spend (in your whole life) on a single game. For example, in Mr Otero’s case, he should sum up all of those $500-$700 a week over the whole of his life – assuming he lives for 30 years – to give a total of $936000. He needs to get all of that… Read more »

Brian
Brian
12 years ago

J.D., it’s not quite right to say you expect an 80% loss when you play the lottery. That would be true if the odds of winning were 1 in 5 and the only prize was your dollar back. But imagine if the odds were 1 in 5 of getting $20 on a $1 bet. Clearly you should take that bet, unless you really can’t afford to lose the dollar. The key here is the expected value–a calculation that takes into account the odds and the payout. Now, none of that is meant to defend the lottery. Of course the lottery… Read more »

Brandon
Brandon
12 years ago

I feel like I have read this basic story reposted 100s of times.

Colin
Colin
12 years ago

The statistical concept you want is called “expected value”. Basically, take the probability of winning something and multiply it by the winnings. Add them all up for all winning values. If the odds are 1 in 4 that you’d win $2 then your expected value of playing is $0.50. Good deal if it costs a quarter to play, bad deal if it costs $1 to play. Every gambling game ever invented has an expected value of less than what it takes to play. (Except if you can count cards or exploit the shuffling machine or … then your odds of… Read more »

dale
dale
12 years ago

The best way I’ve heard lotteries described is
“a tax on people who are bad at math”. I’ve purchased a few tickets over the years, mostly in pools with co-workers. I’ll be danged if they ever hit it big and I’m on the outside looking in! They’d all quit and I’d be the only one left in the department. 🙂

Dave C
Dave C
12 years ago

“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.”

Oh the ironing. xEleventy
Escaping the rat race. You’re doing it wrong.
/this concludes the internet-meme comment for this topic

plonkee
plonkee
12 years ago

I normally think of the lottery as a tax on the being deficient in maths. $500 a week is a lot of deficiency.

dan
dan
12 years ago

@Daniel (comment #8): If you put the $8/month in a low cost index fund for 30 years instead of the lottery, you would have $18,000. It’s not much, but I’d take it over a dream of winning it big.

Sam
Sam
12 years ago

As many others have said, I’ve long considered the state lotto a tax on the stupid.

Colin and Brian alluded to it when talking about expected value – but I’ll put it in even simpler terms: Casinos offer better expected values than state lotteries (except when the jackpot starts to get into the hundreds of millions of dollar range).

If a casino was running the lottery like they run their slots, you’d not get paid a measly 4 million dollars for your 1 in 100 million chance to win. It’d be closer 97 to 99 million.

Who’s ripping you off?

KR
KR
8 years ago
Reply to  Sam

Bear in mind that the casino takes you for 2% every single bet you make. If you only made one bet then sure, you could have those returns. But if you’re reinvesting your winnings from each bet then you’re going to be making some compound losses on your rate of return.

greg
greg
12 years ago

A mathematician once told me that with most lotteries, esp. the big “powerball” multistate lotteries, your odds of winning were better by not playing. He went on to say one was more likely to FIND a winning ticket someone discarded by mistake, and win, instead of actually buying one. The only time I ever won anything was when on a whim I bought a $1 scratch ticket with some pocket change. I won $2. I went back in the store, got my dollar back and got another dollar ticket, figuring that the entertainment value of getting the 2nd one was… Read more »

Dave
Dave
12 years ago

$500-700/week?!?! My mind just boggles at the thought. I would think that using that money for his family would buy them the “easy” life he’s looking for, even in New York city. I don’t know how much money Mr. Otero makes, but I make a decent amount, and even so, I’d love to have an extra $500/week in my budget! I can justify spending a small amount on lotteries, just for the entertainment value, but that’s a serious chunk of change for a lousy expected return. For the record, I will sometimes buy a ticket when the payout gets large,… Read more »

gwyneth
gwyneth
12 years ago

I’ve heard of the numbers of bankruptcies after winning the lotto. they aren’t surprising – people who win the lotto play the lotto so the odds of them being good at finances or delayed gratification is low. I have a friend in Georgia where the lotto pays for a lot of college scholarships. her quote is “the rich have paid to educate the children of the poor for years. the lottery is a them returning the favor. it is a regressive tax on the weak minded and is shameful.

J.D.
J.D.
12 years ago

@Dave @ Accidental FIRE C.
That whole “working is for suckers” thing totally reminds me of Casey Serin, who also spouted the same line. Didn’t work out for him, either.

JenK
JenK
12 years ago

$500 a week is $26,000 a year. In three years, that’s $78,000.

Given that he usually plays between $500 and $700 a week, he’s probably thrown away at least $80,000 (if not $90,000 or $100,000).

That’s insane.

Saxtus
Saxtus
8 years ago
Reply to  JenK

It depends who gets the money, really

guinness416
guinness416
12 years ago

That’s a colossal sum of money. I see people regularly at local corner bodegas who spent ages at the counter buying this game, that game, checking this ticket, then that one. It’s insane. Re odds, my mother knows a man who has won the lottery not once, but twice! Ironically he is a surgeon anyway, so hardly needed the extra cash. I like playing with the gang at work when there’s a big prize. It’s fun – and insurance against them all winning and quitting and leaving me alone.

Michael
Michael
12 years ago

The odds of winning the Super Lotto (available in many states) is constant, around 1 in 120 million. But the payoff varies depending on how many suckers (ahem, players) bought tickets and how long it’s been since the last winner.

So I buy a $1 ticket when the jackpot exceeds 126 million. That way my expected return is at least $1.05, provided there are no other winners. I’m practically guaranteed to come out ahead, right? 🙂

Josh
Josh
12 years ago

the lottery is a tax for the ignorant.

Jason
Jason
12 years ago

I personally think the lottery should be illegal as it is basically a tax on people who really can’t afford it. And even framed as some kind of game, how is it we can discuss welfare while simultaneously encouraging (advertising?) people to waste their money. I’ve heard it as a tax on people bad at math. On the other hand – if you are going to play, your best odds are to buy a single ticket. Yes, buying two or three tickets doubles or triples your chances, but that is nothing compared to the infinitely greater chance of winning by… Read more »

Mike
Mike
12 years ago

It’s hard to feel sorry for someone who complains of a constant headache but who will not stop bashing their head on a wall.

I make just about $30,000 per year and I’m richer than this guy I bet. I’ll also wager that he complains that he needs a raise to make ends meet too.

Sad.

Eric Hollins
Eric Hollins
12 years ago

I’m kind of a fan of when I have a bad day at work, I’ll pick up a $2 lottery ticket on the way home.

Starving Artist
Starving Artist
12 years ago

Here’s a GREAT piece about the lottery on This American Life:
http://www.thisamericanlife.org/Radio_Episode.aspx?sched=1182

It’s “Act Two. Show Me the Annuity” and talks about a guy who used to buy the jackpots from lottery winners who were paid in installments and wanted one lump sum. The “vast majority, he says, wish they’d never won.”

Brian (2)
Brian (2)
12 years ago

Everyone else has already commented a lot, but one thing I will add about expected value is this: You’re not the only one that says “I’ll play when the jackpot is greater than $X million”, where X is usually a round number like 50 million, 100 million, etc. I don’t remember whether it was “Stumbling on Happiness” by Gilbert or just an old statistics class, but if you follow historical participation numbers, you’ll find that waiting for the big jackpot doesn’t increase your expected ticket value as much as you’d think, because the odds of multiple winners (and thus a… Read more »

Colin
Colin
12 years ago

@Brian: my explanation of expected value was very simplified. The winnings of the jackpot is dependent upon the number of players who bet the same numbers, which in itself is a random variable. To make it worse the number of players is, as you pointed out, dependent/linked to the size of the jackpot. So when the jackpot is more that draws more players which increases the probability of players having the same numbers which decreases the expected value. I’d be willing to guess that the probability of the jackpot is also tied into the probability of people playing which makes… Read more »

MultifolDream$
MultifolDream$
12 years ago

The stories for past winners put always oil to the fire. This could have been you!!! … not many know that the chances of becoming a millionaire with regular saving and investing are much much higher then winning the lottery.

Personal Finance Articles - Derrick
Personal Finance Articles - Derrick
12 years ago

JD,

This is the best blog post I have read in months. Just yesterday I had a discussion with a co-worker who purchased a lottery ticket hoping to win big.

I was told I should go buy one.

Funny thing is this person is 5 or so years older than me and I have significantly more savings and investments.

If I did by a lottery ticket every time someone said you are going to miss out, I know I would have a lot less when looking at my bottom line.

Derrick

doctor S
doctor S
12 years ago

Poor guy. I play the lottery every tuesday and saturday, my dad always tells me only buy one ticket. Independent probability!????

Robert
Robert
8 years ago
Reply to  doctor S

I used to play them all…twice a week…spending wayyyy too much money…plus a few scratch off’s once in a while…$5 here…$10 there…when did I get rich!!
Now it’s 1 ( one ) powerball ticket twice a week at a cost of $4…you can’t win if you don’t play…I keep hoping…gives you something to look forward to…

MARTIN
MARTIN
7 years ago
Reply to  Robert

I play the national lottery uk every week, I won 47 times last year..You need a system. Most people just waste money by picking random numbers or birth dates of family. I play two games side by side.One to win small regular amounts, and one to win the jackpot. A by product of trying to win the jackpot is to win small amounts now and then,whereas with my other game I make some good regular money.I used my own system for many years but now supplement it with Ken Silvers silver lotto system,lotto 80 and custom profiles.It works.

jon jon
jon jon
5 years ago
Reply to  doctor S

I won the powerball 1 mil. It is a suckers bet. This is coming from me who just won.

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