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Playing the Lottery encourages us to dream rather than do. Because you could possibly win, no matter how long the odds, you dream of the pot of gold at the end of the rainbow, while other opportunities are passing you by. For me the lottery is the closest thing to evil manifest in Britain today -- apart from day trading, of course!
Gambling v Investing
But playing the lottery is just harmless fun, isn't it? Many people believe that there is no difference between investing and gambling, but we Fools know that investing is very different to gambling. So why are investing and gambling always linked? Because there is an element of uncertainty in both. There are no guarantees that your investment in ARM Holdings (LSE: ARM) will be a good one, or that the stock market will continue to achieve 12% annual compound growth for ever.
But gambling is a business for bookmakers and the Government, one where they are guaranteed to win; it is not a business for investors. Investing in the stock market has, since 1918, returned £112 to you for every £100 you have invested; gambling on the National Lottery returns £50 on average for every £100 you have invested. Not only that, it does not return it in an equitable way; some people, very few, get super-rich, the rest of us just get a little bit poorer.
But gambling on the Lottery is just like giving to charity!
It is interesting to look at exactly where the money goes when we spend £1 on the National Lottery. Basically, it is rigged to give specific returns.
For every £1 gambled on the lottery:
50p is returned as winnings.
28p goes to good causes.
13p goes to the Government in tax.
5p goes to the retailer who sold you the ticket.
4p goes to Camelot, of which they keep 1p as profit.
So the Lottery is not a good investment. It is a tax on the ill-informed, and often hurts most those people who can least afford to be paying it. How many people spend too much of their income playing the Lottery for the dream that they might win, when they would be better off using that pound to pay off some of their debts? The Lottery is a giant and punitive tax scam, in which a huge chunk of money is taken from one group of people -- the ticket buyers -- and distributed among a very few winners, with the balance going to the lottery operators, and the Government.
But you just MIGHT win -- someone has to!
You hear it all the time: "If I don't enter the Lottery, then I can't win, can I? Each week people win on the Lottery, I heard of someone just around the corner who has given up his job since he won. If he can win, why can't I?" Well it is simple; statistically you don't have a chance in hell of winning! Let's do a quick calculation of what the odds are of winning, which is selecting 6 numbers correctly out of the 49 available.
In order to win, you have to pick the first number right AND the second number right AND the third number right, etc. In the language of statistics, AND means you have to multiply the odds of selecting each number correctly. So, to figure out your odds of winning, multiply together all of the fractional odds of picking a given number correctly:
Correctly selecting a winning number from 49 choices gives you odds of 1/49, to correctly select the second winning number you now have to chose 1 from 48 alternatives, 1/48, a third would be 1/47, and so on: this gives the formula 1/49×1/48×1/47×1/46×1/45×1/44 = 1/10068347520.
So, at this point, your odds of winning are 1 in 10,068,347,520. But you can choose your winning numbers in any order, so your chances of winning are somewhat better than this. Your chance improves by the number of different ways that a sequence of 6 numbers can be written down. For 6 numbers this is 6 factorial (symbolised by an exclamation mark, thus: 6!), or 6×5×4×3×2×1, which comes to 720. If this is written in a mathematical formula you would have 49!/(6!(49-6)!).
So to get the real odds you divide 10,068,347,520 by 720 and get 13,983,816. So to correctly select 6 winning numbers from 49 your chances are one in thirteen million, nine hundred and eighty-three thousand, eight hundred and sixteen.
Now that is a large number. Compare that with the chance of being stuck by lightning, which is said to be 2,000,000 to one. Yor chance of being struck by lightning is seven times as great as your chance of winning the Lottery.
And it's a rollover!
Tomorrow's draw is a rollover for the Lottery. Basically this means that as no one won on Saturday, the winnings are carried over to the next draw. This increases the potential jackpot prize fund, which for tomorrow is estimated to be £12 million. Because the prize fund is bigger, more people play the game because they think they could win even more money, but the bigger prize fund does not increase your chances of winning!
Don't do it Fools!
Attacking the lottery is a difficult thing to do, because essentially you're attacking the way people freely decide to spend their money. Just as any rational person should feel uncomfortable telling other adults that they should go on a diet, or exercise more, or what clothes they should wear, we should all feel uncomfortable telling other adults that they shouldn't play the lottery. But this Fool does not mind feeling uncomfortable once in a while when he knows that it is for your own good -- DON'T PLAY THE LOTTERY, FOOLS!
But it's only a couple of pounds!
The dream of winning the Lottery targets most directly those who can least afford to participate. If you are earning £1000 a week, then a gamble of £10 a week on the national Lottery will have little impact on your standard of living. If you earn £100 a week then gambling £10 is a significant proportion of your income, Studies have shown that the people who spend the most on the lottery are those with the lowest earnings; they are gambling on a dream, and it is a dream that will only come true for an incredibly tiny minority.
It may seem that a gamble on the Lottery is a rational investment to a poor person. If they are not saving or investing, if they have debts that they can't afford, a gamble on the dream that they may suddenly become a millionaire may seem rational. This will be true as long as people who don't have much money believe that saving is a hopeless endeavour. In other words, as long as you think that you can't invest, you won't.
The problem is that making an investment in shares is not as easy as buying a lottery ticket. It's not hard to understand why people play the Lottery. If I have £10 in my pocket, I can't go down to the corner shop and buy a share of Vodafone (LSE: VOD), or even add that £10 to my index tracker. But I can go down to my corner shop and buy ten Lottery tickets or ten scratch cards, and for a little while dream of a life without work. Making the process of investing much easier than it is even today is, therefore, a crucial part of steering people away from the Lottery, and is one of our Foolish aims.
The National Lottery has now turned almost three-quarters of British adults into gamblers. Half the adult population now plays the Lottery every week, and in the last year 72% of all adults have bought a ticket. Research has found that men are twice as likely to be serious gamblers as women, and that they are also more susceptible if under the age of 45, have low incomes or come from families with a history of gambling problems.
Statistically speaking, no one has a real chance of winning the Lottery. With odds of 1 in 14 million to contend with, it's impossible to justify buying a Lottery ticket in any rational terms. But if we can persuade people to believed that their money could be saved and invested and that it would accumulate, then the Lottery would become less attractive. The fact is, even small amounts of money piled up over a period of time can eventually become a large amount of money, and no matter how small the sum, you should think about how valuable the money you spend today would be twenty or thirty years from now if it were invested.
And the winner is...
After months of delay, a decision on who has won the right to run the UK National Lottery is expected to be announced tomorrow. Whether it is Camelot, or Richard Branson's People's Lottery, the true losers are all of us who participate, and the biggest winner is, paradoxically, the Government.
Where Next?
Do you buy Lottery tickets? Let us know in this poll, on the Fool's Eye View discussion board.