Until recently, the word lottery has been associated with the kind of big prizes you’d see on billboards alongside the highway. But there’s more to the story than that. Lottery is a form of gambling that lures people with the promise of riches and a sense of meritocracy in an era when economic mobility is increasingly limited. It’s a form of gambling that’s also regressive and exploitative to low-income communities. And it’s a form of gambling that, as a whole, makes little economic sense.
The modern lottery grew out of the need for states to raise money in order to fund government programs and services after World War II. During that period, states were able to offer more and more social safety net services without imposing too much of a burden on middle- and working-class taxpayers. But as the need for state revenues grew, it became apparent that a better way to generate revenue was by offering more and more games. So in the 1960s, most states began to organize lotteries.
A state lotteries begins with a large pool of cash, from which the costs of organizing and running the lottery are deducted. A percentage of the remaining pool is normally earmarked for prize money, and a percentage goes to the state or sponsor in the form of profits and revenues.
Lottery tickets are sold to the public, and they’re sold in a variety of ways, from gas stations to convenience stores, and from newsstands to grocery stores. They’re also sold online. In addition, there’s a substantial number of people who work behind the scenes to design scratch-off games, record live drawing events, maintain and update websites, and help winners after the fact. All of this costs money, and a portion of the winnings is used to pay for these workers.
Many people play the lottery, and a large percentage of them do not consider it a gamble. They’re simply trying to increase their odds of winning a life-changing sum of money by choosing numbers. But, as we’ve seen, the odds are long, and people tend to buy more tickets when a jackpot gets bigger. Then there’s the psychological impact of those glitzy billboards, which give a sense that anyone can win.
But when you’re playing a game that involves a significant amount of risk, it’s best to approach it like any other financial bet. So before you pull the trigger, remember that lottery tickets should only be purchased with money you’re willing to lose. And be sure to stay up to date with all of your favorite stories from NerdWallet by visiting your My NerdWallet Settings page.