Before I bring up my next witness, Willy Wonka, let's look at the dynamics of the lottery. Every system is different, but naturally they are all mathematically rigged to take money from your pockets and pour it back into the state. Unlike casinos, which will at least give you pretty lights and maybe a drink or two, the lotteries return closer to 50% of the original investment rather than the 95% rate in Vegas.
I am not suggesting you hop on the next charter to Reno! But if the prospect of getting back fifty cents on every dollar sounds bad, consider that the winnings, even though in sum they should be regarded as a statewide capital loss, are then taxed. Once the federal and state bites heal, you are down to just a quarter.
Put another way, if Bill Gates were to spend a billion dollars on lottery tickets one month, and kept reinvesting the after-tax winnings every month, a year later he would be down to just $60. Really. That wouldn't even buy him a Windows 98 upgrade, now, would it?
Okay, so let's go for a little pure imagination and summon Mr. Wonka. Charlie Bucket landed the golden ticket on just his third try, but in reality we live in a world full of Veruca Salts. There is no accountability for the fiscal gluttony when the compounding wonders of a sound investment strategy are won over by "I want it now, Daddy!" Since when did patience become negotiable? Since when did hard work end with a scratch-off ticket? Too many people opt for the short-term sugar rush rather than treating their financial well-being like a Gobstopper with everlasting flavor.
Oompa, Loompa, Scooby Dooby De Do Do Do De Da Da-ddy. Not the greatest of transitions, going from lottery woes to The Police, but in the end, they all get broken up by a Sting. That painful peck comes from the odds (of winning in the first place) and the odd (of the irony that even if you win, the taxes assure that the house wins, too).
No, you can't buy lottery tickets in your Roth IRA to sidestep the taxman. Congress is too smart for that. We, on the other hand, are not. The sad thing is that even if you manage to be that rare individual who lands the bounty, you will probably lose, too.
In the gradual accumulation of wealth comes the equally important lesson of how to spend those greenbacks. The self-built millionaire does not wake up one morning and squander everything on unnecessary luxuries. But way too many times the lottery winner of today blows it all on an upgraded, yet ultimately temporary, lifestyle -- and becomes once again the lottery ticket buyer of tomorrow.
I don't expect a ping pong ball watcher to agree. I imagine that lottery aficionados will try to justify the expense, maybe by saying that the weekly purchase was just a pittance, or possibly equal to sacrificing a drink here, a dinner there -- but no matter how acquired, the opportunity cost is huge. That money can be applied to a growing portfolio rather than shrinking away on something so whimsical and mathematically doomed. Me, I'll settle for wearing a Be Foolish T-shirt while watching others lose theirs. It's just not right, and, sadly, over time it may become unhealthy.
Even the casual player is tinkering with the possibility that the novelty impulse will grow into a gambling addiction. Behind every Powerball junkie was somebody who just started by playing a few bucks every few weeks. Crack. Sizzle. This is your brain on lottery tickets. Any questions?
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