On January 1st, 2024, a lucky Michigan resident hit the massive Powerball Jackpot worth $842.4 million. (1) Although it is nice to fantasize about waking up one day with a ten-digit bank account, the numbers show that those chances are extremely low. While it’s widely known, studies suggest that individuals with an annual income below $30,000 tend to engage in lottery participation more frequently, potentially weekly.

Let’s explore the financial lessons that can be gleaned from the lottery and leverage these insights to fortify your wealth-building mindset:

The numbers:

Research shows that you’re more likely to get hit by lightning or find a four-leaf clover than win the lottery:

The odds of winning the jackpot are 292,201,338-to-1. 

The odds of matching all five white balls are 11,688,053-to-1. (2) 

The odds of getting hit by lightning are 1-to-15,300.

The Process:

The lottery works by allowing players to select a set of numbers for a chance to win prizes, including the jackpot. Each lottery game has its own set of rules and regulations, but generally, players choose a specific set of numbers and must match those numbers with the numbers drawn during the lottery to win. For example, in the Powerball game, players pick five numbers from 1 to 69 and one number from 1 to 26 for the Powerball. The jackpot is won by matching all six winning numbers in a drawing.

There are also other prize levels for matching some, but not all, of the numbers, with varying odds of winning.

The specific rules and prize amounts vary depending on the game and jurisdiction.

Additionally, lottery numbers are drawn using a variety of methods, but the common principle is that the numbers are always randomly selected and visible to the viewers. For example, in the Mega Millions game, five white balls are drawn from a set of balls numbered 1 through 70, and one gold Mega Ball is drawn from a set of balls numbered 1 through 25. The drawing process is typically conducted in a secure location with strict security procedures to ensure fairness and randomness. Lottery draw machines are used to achieve a completely random outcome, and the balls are carefully measured to ensure they are all equal in weight and size. The random selection of numbers is a fundamental aspect of lottery drawings, and it is essential for maintaining the integrity of the games

 

The participants:

Research shows that people from various income groups and demographics play the lottery. Higher-income Americans are more likely to engage in sports gambling, while their lower-income counterparts are more likely to buy lottery tickets or scratch-off cards. Across income groups, those in their 20s and 30s are the most active lottery participants. (3)

A 2016 study found that increased levels of lottery play are linked with certain subgroups in the population, such as males, blacks, Native Americans, and those who live in disadvantaged neighborhoods. (4)

Additionally, a survey released by Bankrate found that 28 percent of Americans who earn less than $30,000 a year play the lottery at least once a week. (5)

Therefore, the lottery is played by a wide range of people, but those in lower income brackets and certain demographic groups are more likely to participate.

 

Gambling vs. Investing:

Investing and gambling have completely different approaches to risk. The longer the investment, the higher the likelihood of success.

Gambling, on the other hand, places risk at the center of every transaction or bet, and the longer the engagement in it, the lower the likelihood of success.

While gambling focuses solely on making money, investing aims to help you reach your desired financial milestones. By collaborating with a financial and investment professional, you can develop a tailored financial plan and investment strategy that aligns with your goals.

The probability leans towards the likelihood of constructing wealth through a well-crafted financial strategy and prudent decision-making rather than relying on hitting the jackpot.

ℹ️

Investing involves risk, including possible loss of principal. No investment strategy can ensure financial success or protect against losses.

This information is being provided only as a general source of information and is not intended to be the primary basis for investment decisions. It should not be construed as advice designed to meet the particular needs of an individual situation. Please seek the guidance of a financial professional regarding your particular financial concerns. Consult with your tax advisor or attorney regarding specific tax issues. 

Sources: 
  1. (1) Winner! 1 Lucky Powerball Lottery Ticket Hits $842.4 Million Jackpot In …, www.wkyc.com/article/news/lottery/powerball-jackpot-winner-842-million-michigan-january-1-ohio-lottery-winning-numbers/
  1. (2) Connolly, John. “Powerball $842 Million Jackpot Won in Michigan on New Year’s Day.” North Jersey Media Group, NorthJersey.Com, 2 Jan. 2024, www.northjersey.com/story/news/nation/2024/01/02/powerball-842-million-jackpot-won-in-michigan-on-new-years-day/
  1. (3) “The Economics of the Lottery in the U.S.” SmartAsset, smartasset.com/taxes/the-economics-of-the-lottery.
  1. (4)Wihbey, John. “Who Plays the Lottery, and Why: Updated Collection of Research.” The Journalist’s Resource, 6 June 2022, journalistsresource.org/economics/research-review-lotteries-demographics/.
  1. (5) Gibson, Kate. “Who Buys Lottery Tickets? Those Who Can Least Afford Them.” CBS News, CBS Interactive, 12 Sept. 2018, www.cbsnews.com/news/who-buys-lottery-tickets-those-who-can-least-afford-them/.