Five myths about the lottery

 Five myths surrounding the lottery

Lotteries have been around for the entirety of recorded human history. They have existed since at least the Han Dynasty, China's time when the proceeds could have helped finance The Great Wall. They were even present in the very beginning of America, when King James set up a lottery to raise funds for Jamestown (Va.) in 1612. Still, the lure of winning a lucky number is appealing: A Gallup poll found that half of Americans had bought a state lottery ticket within one year. There are many myths surrounding these games of chance, and the winners and losers.

It is economically sensible to play when there are big jackpots.

It's intuitive: The bigger the winnings potential, the more it makes sense to spend a few dollars on trying your luck. Forbes to Money.com has reported that once the Powerball winnings surpass a certain threshold, then the expected value -- the payout multiplied with the likelihood of winning -- is greater than the ticket's price.

The odds of winning are very slim, and lotteries that offer huge jackpots may not be as lucrative as they appear. First, the annuity payment reduces the net present value of the jackpot. If you decide to take the lump sum, you'll only receive 60 percent. Second, winners have to pay taxes on their winnings (between 50 and 50 percent depending upon the state). With a large jackpot, there are many players so there is a good chance more than one winner will share the prize. For a $500 million jackpot, the likelihood of sharing the prize is about 50%. From there, it increases to around 50%. As jackpots become larger, so does the expected value of winning.

Remember that Mega Millions and Powerball have become larger jackpots in recent years as both lotteries have reduced the chances of winning. Powerball increased the number of numbers in the drawing by adding more numbers in 2015, drastically reducing the chances of winning the jackpot. Mega Million jackpot winnings are less likely at 1 in 302 million. Famously, it is more likely that you will experience other scenarios such as being struck by lightning, or even an asteroid.

Financial problems can be solved by winning big.

Even with all the odds against you, it's difficult to believe that the jackpot will end all your money problems. According to a Consumer Federation of America survey conducted in 2006, about 5% of Americans believe winning the lottery is the best way to build large savings. A survey by Stash in 2019 found that 40 percent of respondents, which includes 59 percent of millennials thought that winning the lotto could be a good option to help fund retirement.

However, research has shown that the best way to get rich is not by winning large amounts of money. An economist team tracked the fortunes financially troubled people in Florida after they won the lottery. They found that those who received large prizes ($50,000 to $150,000) were just as likely to file bankruptcy as those who received smaller amounts. Both groups had low savings and had high levels of debt. According to the National Endowment for Financial Education (NEFE), 70% of people who win a lottery, or get a large amount of money, go bankrupt in a matter of years.

It will not make your life happy to win the lottery.

Professor Sanjiv Chopra of Harvard Medical School said, "Winning a $20,000,000 lottery ticket won't make it happier." He spoke to this in a recent TED Talk. In a recent Ted Talk, Sanjiv Chopra, Harvard Medical School professor, said that while happiness fluctuates depending on whether circumstances are favorable or not in the short-term, it is more likely that people will return to their original happiness level over time. He mentioned research showing that happiness can be affected by changes in circumstances but that people have a tendency to become happier. An article published in 2009 in the International Journal of Psychiatry in Clinical Practice described two cases of depression in Germany. Each of the victims had won the equivalent of half a billion dollars in the lottery. why signing a lottery ticket is a good idea