The lottery is a game of chance where you pay a small amount for the opportunity to win a large prize. Historically, it’s been a popular form of gambling and a popular source of revenue for state governments.
The odds of winning are infinitesimal, but a ticket purchase is often worth the price for many players. “Players are drawn to the prospect of being able to improve their lives dramatically with a tiny investment,” Ortman says, tapping into their aspirational desires and feelings of FOMO (“fear of missing out”).
While states vary in how they allocate lottery funds, most use a formula that puts a large portion toward prize pools and small portions toward administrative costs and vendor fees. Some states also dedicate a portion to other projects, such as education.
As a result, states typically experience a rapid initial growth of lottery revenues, then they begin to level off and eventually decline. To sustain or even increase revenues, lotteries introduce new games in an effort to re-ignite interest.
When you do hit the jackpot, it’s a good idea to work with an advisor to determine whether you should take your prize as a lump sum or annuity payments. An annuity distribution will allow you to start investing immediately and benefit from compounding interest, while a lump sum could encourage you to overspend. Either way, a financial adviser can help you keep your spending in check and make the most of your windfall.
