Most of us dream about winning the lottery. What would you do with the money if you were the lucky winner? You could buy a luxury home, a trip around the world or close all your debts. But, the reality is that most lottery winners lose a significant portion of their winnings shortly after they get their hands on the prize. This is due to mismanagement and bad investment decisions, as well as the fact that many people are not financially prepared to handle sudden wealth.
One reason for this is that lottery jackpots are often hyped by the media to a level much larger than the actual dollar amount at stake. Lottery organizers know that super-sized jackpots drive ticket sales and earn them a windfall of free publicity on newscasts and websites. If they were capped, however, the jackpots wouldn’t grow to these apparently sensational amounts and they’d lose a crucial marketing tool.
Matheson says that the odds of winning a lottery jackpot are actually very low. He points out that the two big multi-state lotteries, Powerball and Mega Millions, offer odds of about one in 292 million — the combined populations of the states where tickets are sold. Increasing those odds to create bigger jackpots would require either higher ticket prices or expansion to more states. But those moves could push people away from the games.
If you were a winner of a large jackpot, the first decision you would have to make is how to receive the prize money. Most lotteries give winners a choice between a lump sum and annuity payments. The lump sum option will pay out a single payment of the prize money after taxes and discounts. The annuity option will spread the money out over three decades, giving you a small initial payment followed by 29 annual payments that increase by a percentage each year.