Lottery Addictions, Gambling Habits & Other Big Money Mistakes

by Jacques Sprenger on 2011-09-1316

The lady watched her husband open the safe in the bedroom and memorized the code (true story). She then proceeded to open the safe once he had left for work, and took the valuable ring he had given her for their anniversary. She took it to the nearest pawnshop and accepted the first offer, about 20% of the real value (a diamond worth about $2,000).

Is she a criminal? No, the woman was not a thief; she was not a criminal. She simply was addicted to slot machines and gambling in general. She bought scratch lottery tickets every day, panting with anticipation at the immediate potential reward. When she won, she bought more tickets, or she went back to the arcade to “invest” in her favorite game. She could spend hours watching the cards tumbling in the dark, screaming with joy when she hit the winning combination. Needless to say, she never recouped enough to recover the diamond ring.

The marriage almost ended in divorce when the husband found out. He called me and asked for my help, although he really had the need to unload his immense frustration. Since I have an amateur’s knowledge of personality disorders, I explained to him that some people simply cannot control their urge to gamble; his wife was one of them. The only cure was to keep her away from temptation and get her some counseling.

It is human nature to gamble. Lotteries and gambling are as old as civilization. There are even lottery sites out there that proudly declare that “proceeds from the United States Lottery in 1777 paid for the provisions for Washington’s troops”. Whether or not these proclamations and claims are backed up, the fact stands that the gambling or gaming industry is big business.

Is this about taxing the poor? It is commonly believed that lotteries are a hidden tax on the poor and yet, the lady in my example comes from a high middle class background. Apparently, the low income class don’t play the lottery as much as the middle class. It is not a tax, of course, but one could argue that real taxes would be higher if it weren’t for lotteries which go to education and programs for the poor.

So what attracts us to gambling? My spouse and I know that the odds of winning are remarkably small: 1 chance in 300 million to hit the jackpot. Yet we buy our ticket every week, for it is not so much the money, as it is the excitement, the adrenaline flowing as we wait for the winning number to appear. For a lot of people, that excitement may just be worth the $5 a pop.

A Few Tips On Playing The Lottery

Here is some good advice from the pros. Experts recommend the following when buying a ticket:

  1. Don’t buy a ticket for a friend or neighbor. Imagine the problem (or misunderstanding) if you find out that what you are holding onto is the big winner, worth millions. Do you have a claim on these riches? Of course not — while you paid for the ticket, your friend still paid you back the five dollars. It’s his and his alone!
  2. Don’t go half-and-half with a friend or relative. How can you prove that you paid your share? He has the ticket and you may be left holding the bag if the ticket wins big. By the same token, play it carefully if you are joining a pool of some sort (say a church or office pool). Make sure that everyone is on the same page about who has a stake or claim on the prize before anything happens.
  3. Don’t fall for the well designed ads that promise you the infallible way to win at the lottery. If they found a way, why should they share it with you? All they want is to scalp the naïve and gullible citizens.
  4. Keep your old losing tickets if you constantly spend on (or “invest” in) lottery tickets. You might be able to itemize your losses as tax deductions, but check with your accountant for specifics.

Ultimately though, you don’t want to feed a gambling habit. Know how to recognize this and when to ask for help (if necessary). Not realizing when to stop or to seek support or help can cost you your entire life’s savings. In fact, the costs can even be higher, as in the case of the infamous Joran van der Sloot, who eventually lost his freedom.

Other Ways To Lose Money Big Time

This brings to mind something else I’ve read in Consumer Reports. One of their articles discussed a doozy of a list that details the 12 biggest money mistakes that could cost you a tremendous amount of money — altogether adding up to $1,000,000 or more! Surprisingly, a gambling addiction (or any other vice or money sapping addiction) was not in this list.

Even when everyone says that the small things add up, they don’t compare to how quickly your money gets drained when you find yourself in situations that can cost you in a HUGE way. The list was ranked and I was somewhat surprised at some of the results. Here’s a quick ranking for you based on cost:

Money Mistakes That Can Cost You Big ($1,000,000)

Money Mistake
Overall Cost
Investing for your retirement way too conservatively. $360,000 to $750,000
Premature retirement or retiring earlier than necessary. $237,000 to $309,000
Battling it out in a divorce (with lawyers milking you dry). $49,000 to $188,000
Not getting enough home insurance (what about other types of insurance which cause out of pocket payouts?). $16,000 to $194,000
Overpaying the mortgage. $27,000
Maintaining a credit card balance. $5,000 to $23,000
Living an unhealthy lifestyle. $4,600 to $42,000
Not having a Roth IRA. $9,000 to $26,000
Cashing out of a 401k too early. $6,000 to $17,000
Underfunding your 401k. $36,000
Paying too many account or fund fees. $4,000
Becoming a scam victim. At least $100

A gambling addiction or an expensive vice should be at the top of this list, being that they’re fairly common and can turn out to be the most damaging financial mistake that anyone can make. If you’re interested in more money mistakes, you can check out The Digerati Life’s own list.

I’m always of the mind that keeping your money is more important than even making it. So if you can sidestep these problems and situations, you’re already miles ahead with your money!

Created January 20, 2008. Updated September 13, 2011. Copyright © 2011 The Digerati Life. All Rights Reserved.

{ 15 comments… read them below or add one }

hank January 20, 2008 at 12:03 pm

Interesting list on what could cost me 1MIL — It really could be much much much more on #12 — Falling for a scam can be more than 1MIL itself, sad, but true.

Silicon Valley Blogger January 20, 2008 at 1:46 pm

@Hank — you are absolutely right about scams. People lose their entire life’s savings on rip offs and con games they become victims of. The more you know the more you can protect yourself!

Lawn Chair Millionaire January 25, 2008 at 2:49 am

Something really fantastic i should say about this post. I cannot believe that we could be losing such a big amount of money due to our carelessness. Whatever money we invest — a big or small amount — we need to be doubly sure about how we put our money to work. If our schools and families can take some action regarding educating our youngsters about money saving, then the future could be rosier.

Myfinancebutler May 12, 2008 at 8:08 am

Good discussion and a good reminder. It’s always helpful to look at others’ mistakes!

Michael March 11, 2009 at 2:01 pm


Thanks for the tips. I know *I* certainly can’t afford to make those mistakes. :/

ispeak@FreeDivorceInformation January 28, 2011 at 7:04 am

I am surprised to see that the divorce issue is on the 3rd place. Fortunately, there are sites that offer some free divorce information.

Kosmo September 13, 2011 at 9:20 pm

“Keep your old losing tickets if you constantly spend on (or “invest” in) lottery tickets. You might be able to itemize your losses as tax deductions, but check with your accountant for specifics.”

IF you keep good records, you can deduct the losses to the extent of your winnings.

In other words:
Year 1: $100 winnings, $25 losses = $75 taxable income
Year 2: $25 winnings, $100 losses = $0 taxable income (can only deduct $25 of the losses)

More about it on the IRS web site:

jpassmore September 14, 2011 at 5:08 am

What is “Overpaying the mortgage” exactly?

Jeremy Streich September 14, 2011 at 7:52 am

“A recent review of demographic studies commissioned by the South Carolina Education Lottery showed: African-Americans made up 19% of the state’s adult population but accounted for almost 39% of frequent players; people in households earning under $40,000 accounted for 28% of the state’s population but made up 54% percent of frequent players; people with no high school diploma accounted for 8% of the state’s population and 21% of frequent players; and people whose highest educational achievement is a high school diploma or GED made up 25% of the total population and 34% percent of frequent players.”

Meaning those who are economically and academically disadvantaged have a disproportionate representation among lottery gamblers. It really is a tax on the poor and those who can’t do math.

Silicon Valley Blogger September 14, 2011 at 1:08 pm

I was also taken aback by that item on the list, because how can you waste money by paying down the mortgage? I am assuming that there are situations when you end up paying more on your mortgage than you should be — perhaps your house has gone down in value and you owe more than you own. I also read a few more explanations here, although it supports how it’s actually a good thing (in general). I’d be interested to know if anyone has had a negative experience by overpaying on their mortgage or if you have an alternate interpretation of what it means.

Kosmo September 14, 2011 at 2:54 pm

I have a couple of thought on the overpayment of mortgage.

1) You have a very low rate on your mortgage and a good investment opportunity that pays more. Paying extra on the mortgage is an opportunity cost.

2) You pay extra on your mortgage, but it gets applied as a future payment instead of applied to the principal. In other words, you pay 10 times your normal mortgage payment on Feb 15, and instead of reducing the mortgage balance by that amount, the bank applies it as your March-December payments.

One interesting benefit is that home equity is exempt from being taken during bankruptcy (up to an amount that varies by state). Put $1000 extra every month into a savings account and you’ll lose it if you go bankrupt. Take the same $1000 and put it toward your mortgage, and you’ll have that money as home equity that is exempted from the bankruptcy process.

jpassmore September 15, 2011 at 5:16 am

Thanks for the links and examples SVB and Kosmo. I’ll be sure to be careful when I decide to focus on my mortgage repayment 🙂

Squirrelers September 17, 2011 at 9:57 pm

Gambling as entertainment in Vegas, for example, is one thing. However, having an addiction to it can be catastrophic to people’s finances. Why “invest” in something where the odds are stacked against you?

People might argue (rightfully so, in some cases) that the stock market is like a casino. Well, if it offers you a historical positive rate of return, it’s better than the expected losses if you take the other approach!

Ted Jenkin October 14, 2011 at 2:59 pm

Your divorce numbers are way off. Divorce is one of the leading causes of people NOT becoming millionaires. Also, don’t play the lottery if you’re thinking about making money — it’s just a huge mistake!

Ted Jenkin, CFP®, AWMA®, CRPC®, AAMS®, CMFC®, CRPS®
Co-CEO and Founder
oXYGen Financial, Inc.

Silicon Valley Blogger October 14, 2011 at 4:10 pm

@Ted Jenkin,
The numbers and statistics given above are based on information retrieved from Consumer Reports, and may only be estimates. I believe that financial losses from divorce cases may be a lot more substantial and it all depends on your asset base to begin with.

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