How a Lottery Jackpot Affects Your Wallet

When a lottery jackpot hits the billions, it’s easy to imagine life-changing money just one $2 ticket away. But the reality isn’t quite that simple, and winning a massive prize can actually hurt your wallet over time.

Lottery prize money is funded by the dollars that players’ losing tickets contribute to the pool. So, when a jackpot hits $300 million, that means there have been roughly 300 million losing tickets sold since the last winner.

The advertised prize value of a lottery jackpot is the total amount that would be paid to a winner choosing payment through an annuity over 30 years. But winners can choose to take the lump sum option, and that lowers the value by a significant margin. Then there are the taxes: federal taxes can range from 24% to 37%, and state and local taxes may be another 5% or more of the winnings.

Finally, if there’s more than one winner of the jackpot, it’s likely that they will have to split the prize, further reducing the expected payoff for every ticket. When all the factors are taken into account, there is a reason that many people find lottery winnings to be meager — they don’t provide much of a positive expected return over their investment. But that doesn’t mean that people aren’t playing. In 2020, Americans spent $90 billion on lottery tickets. Here’s what you need to know before buying your next ticket.