The other day, I was picking up a copy of the New York Times from a convenience store in my area and I saw something very interesting occur. I had never taken time to notice this, but hanging behind the clerk’s counter was probably every different type of ‘scratch and win’ gambling ticket you could find in the United States. In addition, the line for the people waiting to play their lottery numbers was longer than the line to buy all other goods.
The gentleman in the line ahead of me at the store looked like an honest working man in his early 40’s. He had a bottle of juice in his hand that he was preparing to buy and when the cashier asked if he required anything else, he began ordering his laundry list of scratch off tickets. He purchased eight different tickets that came to a total of $18.00. Now, I’m not one to judge but in the interest of providing some vital information, I’m going to make the assumption that this is a purchase he makes multiple times during the week. Let’s give this guy the benefit of the doubt and say that he makes these scratch off purchases once a week. What conclusions can we draw about his financial future?
If he continues to purchase tickets at this rate, he’ll spend $72.00 per month, and $864.00 per year. Now, according to one scratch card company, there is a 1 in 16 chance that you will have a winning card for the $1, $2, and $5 tickets; so it’s plausible to believe that this guy will win every one in a while, but certainly not more than, say, 8% of the time (we’re giving him the benefit of the doubt once again). This would mean that over the course of a year, given that he was winning 8% of the time, he would have a winning ticket about 4.5 times.
We’re going to cut this guy a break one more time and say that he wins 5 times this year and rakes in a whopping $150.00 on average; yielding him $750.00. But what do the numbers really show? That’s right; he’s ultimately at a loss because he invested $864.00 into this venture. So, as opposed to risking a loss of $114.00 even in the greatest of circumstances, what can this guy do?
We’re going to take the safe approach here and assume that this gentleman got tipped off about a savings account that was earning 3% interest compounded daily. The interest rate isn’t that spectacular, but it will certainly put our hard working companion in a position to make a profit off of his money instead of incurring a loss.
If he saves a year’s worth of scratch off money and puts it into this account, how much will he have at the end of a year? The answer is $890.31; a profit of $26.31. This profit isn’t anything too extravagant but imagine what would happen if he continued to contribute the $72.00 per month worth of tickets into this account until age 65 when he’s ready to retire. Even if this money was contributed to an account that yielded no interest, he will have saved $21,600 in the years between age 40 and age 65; not bad for giving up those scratch off tickets, and also a nice chunk of change to pass off to the grandkids.