Bet on lottery or save and invest?

Should you bet on lottery or save and invest. The thought of winning the lotto and spending the millions, has probably at least crossed everyone’s mind once in their lifetime by now. Winning an amount of R50 million will make life a bit easier in the country’s current economic situation.

Depending on their monthly budgets, some people will spend only a few bucks on a lotto ticket every month where others, even if they don’t have the budget for it, will spend an amount that could’ve been used for necessities. Results from multiple researches all over the world show a clear trend that low income households will spend more on lotteries.

People will rather spend money on lottery than saving for retirement

Even though regular lotto players from low income households might not win the big prize, they have greater odds of winning smaller prize tiers which motivate them to keep on trying their luck.

America

According to CNN Money, Americans spent $70,15 billion (approx. R1,16 trillion) on lottery tickets in 2014. New York times stated that in a household where the income is less than $10,000 a year, they spend an amount of $597 (approx. R9900) a year on tickets.

Australia

Results from the Roy Morgan Gambling Currency Report in 2018, showed that 7.7 million Australians bought some kind of lottery ticket from July 2017 – June 2018. And that participants spend on average over $100 (approx. R1150) per year on OzLotto, Powerball and Monday Lotto tickets.

England

The National Lottery operator in England revealed in November 2019 that their ticket sales between 1 April and 29 September 2019 were £3,9 billion (approx. R82,5 billion) for just six months.

South Africa

According to Wikipedia, the National Lottery generated R4,7 billion in 2012 for Lotto and PowerBall tickets sales. 2018/2019 research in from 3,090 households showed that 23,6% of the participants spend between R21 and R50 per month. 31,9% of the respondents spend between R51 and R150 per month, and 26,9% spend on average R109 per month but increase their amount to R185 each month when there are bigger payouts. In September 2019, the National Lottery stated that they paid out more than R2,5 billion from January 2019, which can be confirmed with historical lotto results for 2019.

Spain

Reuters reported in December 2019 that Spaniards spent €2,82 billion (approx. R53,1 billion) on tickets for El Gordo in 2018, the annual Christmas lottery. This averaged to €60,30 (approx. R1130) per person for one event.

What are the real chances to win the lottery jackpot?

Although lotto players are keeping their eyes on the big prize of being financially sorted for life, what are their chances of winning that first prize winning amount?

Buying a lotto ticket vs saving the money

The saying goes that “a penny saved is a penny earned”, meaning that money should not be wasted and should rather be saved.

A quick calculation of the amounts that lotto pundits spent on lotto tickets in the scenarios above, shows what amounts could’ve been deposited into a savings account, retirement investment or even used to buy company stocks.

If an average amount of R150 per month is used, this equals 30 lotto tickets @ R5 per ticket. If the amount was spent on one draw the chances of winning would’ve been 30 in 20,358,520, but if 1 ticket was bought for 15 different draw dates the chances of winning will still be 1 in 20,358,520 for each draw. For the year this will equal to R1 800 spent with nothing to show for the slim chance of winning.

Saving the amount of R150 per month at an interest rate of 2.5% for 12 months, will calculate to the amount of R1 820 that could have been saved.

Taking the same amount of R150; if shares were bought on one of JSE’s Top 40 Companies, Sibanye Stillwater Ltd. a year ago at R14,53 on the 19^th of June, the amount of R150 would’ve given at least 10 shares. The table below shows the number of shares that could’ve been bought at R150 each month.

Over the period of 12 months Sibanye’s share price grew with 125,19%, and on the 17^th of June the share price was R32,72. If the total of 69 shares bought over the year would be sold at R2 257.68 (69 x R32,72) this means the profit made for the year would’ve been R457,68.

From the information and calculations above, saving the amount that would’ve been spent on a lottery ticket, will guarantee a specific amount in a savings account. It might not be the millions that everyone is dreaming about, but it will be money well spent, saved for the day when needed most.

It is advisable to discuss retirement plans with a financial adviser, who will calculate and advise what amount of money needs to be put aside monthly to have enough saved for the future. In-depth research also needs to be done before buying stocks of a specific company.