In An Economy Rigged Against The Poor, Lotteries Are ‘Mechanism Of Social Mobility’

Written by Dana Sanchez

Americans spend at least $73 billion on lottery tickets a year, and as income inequality grows, low-earning households are spending a disproportionate amount of their discretionary earnings on a chance to get lucky, according to a new study.

Among the poorest Americans, 28 percent play the lottery at least once a week compared with 19 percent of households with higher earnings, reported.

Within a year, that means financially strapped households spend $412 on lottery tickets, nearly four times more than the highest-earning households admit to spending.

“That works out to $34 a month,” said Greg McBride, Bankrate’s chief financial analyst. “That’s a substantial enough figure to plug a hole in your monthly budget. That could be the difference between a bill being past due or paid on time, the difference between incurring debt or paying cash for a necessity or the difference between saving or not saving.”

Research firm GfK conducted the study with a national sample of 1,000 American adults on Aug. 17-19.

“Lotteries have become an alternative mechanism of social mobility—a way of achieving financial success in an economy that’s increasingly bereft of those opportunities,” said Jonathan Cohen, a Ph.D. candidate, in a Bloomberg report. Cohen is completing his dissertation on American lotteries at the University of Virginia. “There’s an understandable belief that the economy is rigged and your best chance of making it out and getting rich is through the lottery, not through your job or savings.”

Americans earning less than $30,000 a year are most likely to buy lottery tickets each week, the study shows. Low earners spend 2.5 percent of take-home pay on lottery tickets — about $8 a week. The highest-earning group measured by earns more than eight times the average income of the lowest group but spends three times less on lottery tickets.

Cohen attributes the increase in sales to widening income inequality and other sociopolitical factors, Bloomberg reported. “While lottery profits account for a very small percentage of each state’s overall revenue, it’s costly to the state’s poor, the less educated, and communities of color.”

State lotteries started emerging in the 1970s and 1980s when rates of social mobility in the traditional economy stagnated and then declined, Cohen said. “Lotteries are a runaway train, seeing increased spending over time. But the communities playing the lottery get a lot less out than they put in.”

The real winners in lotteries are supposed to be education, environmental protection, and other projects earmarked for the proceeds. However, critics say the money has little or no effect. Instead of adding to the funds for those programs, legislators factor in the lottery revenue and allocate less government money to the program budgets, said lottery critic, Patrick Pierce, in an ABC report. A political scientist at St. Mary’s College in Indiana, Pierce has analyzed the impact of lotteries.

“In the first year of a lottery there is a dramatic increase (in spending on education),” Pierce told ABC. However, in subsequent years, the increase in education spending is much smaller than in states without lotteries. “Given a few years, a state would have spent more on education without a lottery.”

Folks in the lowest-income households don’t earn enough to reduce their discretionary expenses, said Michael Kitces, a certified financial planner, in a report. Finding ways to boost their income is the only strategy that makes sense.

But reducing discretionary spending will not necessarily leave you with enough money to improve your financial situation significantly, said Quentara Costa, founder of Powwow, a Massachusetts financial planning practice.

“Let’s say someone our age didn’t get coffee for three years. So what they save $10,000 for like a down payment to a house? Depending on where you are, that’s nothing,” Costa told Bankrate. “To me, it’s just silly when they talk about that and I’m not trying to trivialize it, but you’d have to give up a lot of things for it to really make a meaningful impact.”