Comments on: Gas or Cash? Lottery Players’ Fuellish Ways

By: brettc

brettc — Tue, 08 Jul 2008 20:00:37 +0000

Thanks for the clarification on the lump sum. I guess it would make sense to do it that way, but I’ve always figured that a set amount every year would be better. I don’t plan on winning the lottery, so I’m not too concerned about it. I have read about lottery winners that have nothing to show for their winnings even after only a couple of years. I know there was some guy recently that won something like $35 million and actually invested it instead of blowing it all on crap. So there is the occasion smart winner.

By: The Comedian

The Comedian — Tue, 08 Jul 2008 17:35:57 +0000

It’s not $100 per year nor is it $1,000 per year.

It is $2,600 per year in the form of twenty six gas cards each redeemable for $100 in gas.

26 cards per year times 100 dollars per card times 44 years = 144,400 dollars.

By: SunnyvaleCA

SunnyvaleCA — Tue, 08 Jul 2008 16:53:50 +0000

I’m not math wizard either (oh wait, maybe I am). Anyway, I think your original text is probably supposed to quote $1000 per year and not $100. If someone can make $100 per year * 26 years look like $114,400 present day value, then that person absolutely is a wizard.

By: shaker

shaker — Tue, 08 Jul 2008 16:22:32 +0000

Virginia (and many other states) have printed disclaimers allowing them to sell tickets even after the top prize is awarded.

They just don’t trumpet the fact.

By: GS650G

GS650G — Tue, 08 Jul 2008 15:00:26 +0000

Buying a F-350 super duty afterwards and feeding it would be fun, especially with NYS’s funds.

By: sitting@home

sitting@home — Tue, 08 Jul 2008 14:53:55 +0000

And the lottery is is of course designed so that the state inevitably makes money. And so its kind of a voluntary tax, in that its very improbable that YOU are going to be one of the few people to win more money than they spend.

There’s a story on CNN today about how Virginia kept on selling lottery tickets AFTER the big prize was given out. So there was zero chance of winning it. That has to be some sort of criminal deceit.

By: seoultrain

seoultrain — Tue, 08 Jul 2008 14:48:22 +0000

My understanding is that most lotteries don’t give you a very good percent yield on the annuity, so it is far better to take the lump sum, find a financial advisor, and invest it. Done right, you should be more than able to live off the interest.

But I won’t ever be put in such a situation, so no need to think about it.

By: toxicroach

toxicroach — Tue, 08 Jul 2008 14:37:48 +0000

The annuitized amount is not necessarily better.

It depends on the present value of the annuity vs. the lump sum amount. Without actual figures on the lump sum v. the annuity and the tax consequences its impossible to say which move is foolish.

By: brettc

brettc — Tue, 08 Jul 2008 14:23:11 +0000

I just call it the idiot tax. If I pay too much for something that I could have bought cheaper somewhere else, the difference I paid is the idiot tax. Same thing for lottery tickets. There’s a very slim chance of winning, so people that play lotteries often are essentially throwing their money away. You’d be better off to invest it, but people that play lotteries generally don’t know how to save money anyway.

These people must be really dull to be taking gas cards as payment. But I guess it’s no different than people doing the lump sum amount instead of the annuitized amount. Oh well, you can’t fix stupid. Just ask GM.

By: tree

tree — Tue, 08 Jul 2008 14:00:26 +0000

“tax on hope”
“tax on the stupid”
“tax on the mathematically challenged”

Is the lottery being a “tax on x group of people” a clever bit of wisdom, or a cliche? I’ve heard it before, and not by the Best and Brightest.

By: AKM

AKM — Tue, 08 Jul 2008 13:59:45 +0000

Meh. People buying into this are just as panicked and dumb as those getting the Chrysler gas sale.

On a related matter, once I accumulate 25,000 pts on my credit card, I can get:
- $250 cash
- a $250 gift card for, say Starbucks
- a $200 (yes, two hundred) Amex giftcard, usable at most places
- a $179 ipod.

The worst part about it is that as those are optins, I’m sure some people take stuff other than the cash. WTF?

By: chuckgoolsbee

chuckgoolsbee — Tue, 08 Jul 2008 13:40:23 +0000

The lottery is a tax on the mathematically challenged. Those $100 gas cards would go pretty quick these days if you’re dumb enough to drive a Yuckahoe or similar guzzlin’ SUV.

I like money too much to gamble with it, so I never buy lottery tickets or go to casinos. I do however, buy stocks. That form of “gambling” at least doesn’t have a “house” that always wins.

–chuck
http://chuck.goolsbee.org

By: nudave

nudave — Tue, 08 Jul 2008 13:35:20 +0000

I suppose that without lottery tickets, many cretins would have no retirement plan whatsoever.

By: jaje

jaje — Tue, 08 Jul 2008 13:31:45 +0000

A famous saying about the lottery which rings true – “a tax on the stupid”. Yes let’s send out gift cards as rewards for a lottery winner only to be spent on gas – can you even buy your chew, cigs, jerky and 40 ounces of Bud with those cards, too?

If you are wise you ask for the up front payout and put money in your own interest bearing savings – play the stock market, etc. and you’ll be an even bigger winner in the long run. Those who choose the payout over time wind up with less wealth as they treat it as an annuity and spend all the money quickly and wind up living lottery paycheck to paycheck. Statistically, you have a greater chance of getting struck by lightening or hooking up with Jessica Alba (one can only dream right?).

By: Stein X Leikanger

Stein X Leikanger — Tue, 08 Jul 2008 13:22:21 +0000

Well, the dollar is nosediving in value, and very likely the day is coming when oil exporters will no longer accept it as payment for oil. At any rate, the price for a barrel of oil, and with it the price of gasoline, will rise.

Twenty years from now, getting hold of just a gallon of gas to put in a car will probably be very difficult and very expensive — and holding a state-backed document guaranteeing you gas would be something …

BUT they thought of that. If the cards had stated a volume of gas, instead of a dollar amount, then we’d be talking.
That guy would be wading in money. Now he’ll just have worthless dollar bills that far down the road – he should definitely cash out now.

Tells you something about what the talk is as far as gas is concerned.

By: Strippo

Strippo — Tue, 08 Jul 2008 13:04:32 +0000

Money is money. The idea that earmarked money is somehow better than cash has always baffled me. I guess cash just can’t be marketed to give it an enhanced perception of value and/or utility, like gift cards, gas cards, “miles”, etc. Even the concept of food stamps is just a political marketing gimmick. Taxpayers won’t support direct payments but will support food stamps. Little do they realize that food stamps increase food purchases by perhaps 5% relative to direct payments (or at least that was the figure 25 years ago when I was taking public sector economics). All we’re doing for the most part is freeing up the cash that the recipient would otherwise have spent on food. This is true even in the total absence of food stamp fraud. If the gimmick is necessary politically to help the poorest of the poor, then so be it, but it would be much more efficient to hand out cash instead of “stamps”. This is all common sense stuff, and yet the cash substitute gimmicks thrive.

By: The Comedian

The Comedian — Tue, 08 Jul 2008 13:03:35 +0000

For years now I’ve called the lottery a “Tax on Hope”. Stuck in a bad situation, want to have a dream that it might all get better suddenly without any action on your part? Pay the Hope Tax.

_______________

44 years at $2,600 per year, given a 6% discount rate, is worth just about $40,000 net present value, pre-tax, or about a tanker full of gas after taxes.

By: 210delray

210delray — Tue, 08 Jul 2008 13:02:36 +0000

I agree. Lotteries are for the gullible or un- or undereducated people. Poor people play disproportionately, so it’s great “stealth” tax for politicians afraid of raising other taxes like income or property taxes for those who are better off financially.

By: RayH

RayH — Tue, 08 Jul 2008 12:55:40 +0000

My written opinion of people who play the lottery in scratcher form or megasuperpower pick the numbers would certainly get me banned for life on TTAC. That being said, I’m a sucker for a casino every so often, so I guess I’m calling the kettle with a can of black Rust-oleum.
Inflation and probable increases in the cost of fuel make this idiotic in my estimation. Of course, people I see who win with scratchers normally don’t pocket the profits like they should… they buy more scratchers! Must… restrain… from… flaming…
Rather than say what I think, I’ll quote an Asian professor of economics with a thick accent I had years ago who hated the lottery: “Lottery is poor tax. You poor, you pay more tax with lottery. Stupid. Stupid. Stupid.”

By: 210delray

210delray — Tue, 08 Jul 2008 12:51:21 +0000

I guess the “future dollars” thing, other than for these new gas payouts, is what makes every mega-lottery winner I hear about take the full amount immediately, even though taxes takes a much bigger bite, instead of spreading out the payments over 20 years (even if they died, wouldn’t their heirs continue receiving the payouts?). Then they compound this mistake by ruining their lives with way more money than they can handle.