Most people have fantasized about winning the lottery. It’s the stuff of dreams: shopping sprees, luxury homes around the world and paying off all mortgages or student loans. But the reality is that it’s not much different from gambling in the sense that you are giving away money to some strangers with an intangible promise of future riches.
Lottery is a form of government-sanctioned gambling, and the word itself derives from Middle Dutch loterie or Old English lootie “action of drawing lots” (the first printed reference to a lottery was in 1569). It’s a form of gambling that involves the issuance of tickets with numbers on them to win a prize. In the United States, most states offer lottery games such as scratch-off or daily drawings where you pick the correct numbers to win a cash prize.
Buying a ticket to the lottery means you are spending $1 or $2 for the chance of winning hundreds of millions of dollars. That’s a pretty low-risk investment, especially when compared to risky investments like stocks or real estate. But it’s also a way to forgo saving for retirement or college tuition, and as a result lottery players contribute billions of dollars in state revenues that would have been better spent on other needs.
In addition to the money paid to the lottery retailer, a significant portion of the jackpot prize gets eaten up by overhead costs and taxes. And when you finally win, you have a choice between taking the entire amount in one lump sum or splitting it up into an annuity payment. If you choose the lump sum, you’re likely to get significantly less than the advertised jackpot because of the time value of money and income taxes that may apply.
