I love the idea of winning the lotto. I only buy tickets maybe three times per year, but when I do I am absolutely convinced I'm going to win (don't worry, I understand the reality and the odds, but it's nice to dream).
Usually, I've already worked out what/how/where/when/why I'm going to spend my immense winnings.
But I was listening to the Freakonomics podcast recently where I heard about Prize Based Savings accounts. Basically, if you put money in to the savings account, you are entered in the draw to win prizes. The prizes are typically in the form of extra money deposited into your savings account. I'm not sure whether these are high interest rate accounts, or if they have a lower interest rate and use the difference to form the prize pool... but it got me thinking.
If you regularly played the lotto, how much money would you have after forty years of putting that money in the bank, rather than in the lotto. And how does this compare to any winnings you are likely to have earnt from the lotto during that time.
Using this handy interest calculator from ASIC, I was able to predict that if you put $15 per week into the bank (I'm assuming an interest rate of 5% per annum) then you would have $96,605 after forty years. Do you think you would have won that much back from the lotto during the same time? Possible, but not likely.
Of course this needs to be adjusted for inflation, etc... but it's worth thinking about.
The flaw, of course, is that putting $15 away per week and waiting for it to accumulate isn't nearly as exciting as the prospect of winning the "big one". And the potential million dollar big one is more enticing than an effectively guaranteed hundred thousand.
It's the same with cash bonus payments when compared to tax cuts of the same magnitude - and hence the huge spike in purchases of big screen TVs after the Economic Stimulus Bonus Payments.
Anyway, play around with that calculator to see how much you might have in the future! Or just buy a lotto ticket. Whichever takes your fancy.
Links:
http://www.d2dfund.org/research_publications/prize_based_savings_product_innovation_make_saving_fun
http://thebankwatch.com/2007/01/20/a-prize-based-savings-account-more-credit-union-innovation/
http://en.wikipedia.org/wiki/Premium_Bond
http://www.asic.gov.au/fido/fido.nsf/SavingsInvestment?OpenPage
Monday, January 17, 2011
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If you play twice a week statistically you should win division one
ReplyDeleteevery 2789 years. (Odds of division 1 is apparently 1 in 2,036,265)
What would $15 in the bank each week do over 2789 years!?
If there is anyone out there smarter than me, please calculate the compound interest accumulation over 2,789 years. Given that 50 years gives you $136,000 or so... I'm guessing 2,789 would be just a wee bit more than that!
ReplyDeleteActually it should be over 19579 years as I had assumed playing twice a day rather than twice a week!
ReplyDeleteWell... it depends... because does "play" mean one game or one ticket (which could be up to 50 games).
ReplyDeleteMany years ago I read a paragraph-length story in one of those "Weird News" features that print publications used to have before we had blogging, and I have tried and failed to ascertain it's veracity every since.
ReplyDeleteAllegedly there was a judge in some court in the United States who was refusing to impose custodial sentences ever since the construction of a new escape-proof prison in his jurisdiction, on the grounds that sending somebody to a prison without hope of escape was inhumane.
It occurred to me that the function that the Lotto serves is likewise to make living comfortably in suburbia with a good job that pays the bills more humane.