The Mega Millions jackpot makes this the week to talk about lottery economics, so here's a whopper: Households earning less than $13,000 a year spend a shocking 9% of their money on lottery tickets, Henry Blodget relays from a PBS report.* Are they clueless? Are they desperate? Are they economical? Maybe, probably, and possibly.
For the desperately poor, lotteries perform a role not unlike the obverse of insurance. Rather than pay a small sum of money in exchange for the guarantee of protection that you'll need in the future, you pay a small sum of money in exchange for the small probability that you'll win money to help your lot right away. It is, for lack of a better term, a kind of aspirational insurance.
As it turns out, the typical U.S. family spending spends nearly the same share of its money -- 10.8% -- on insurance and pensions, including mandatory insurance programs like Social Security. The poorest working families also pay Social Security. But approximately 10% of households, most of them in the bottom decline, pay net zero federal taxes (including Social Security) due to tax credits in federal income tax code that bring their total federal burden past zero.
*Update: Some friends on Twitter are questioning the veracity of the PBS reporting. It could be wrong, of course. Still, the idea of a typical poor family spending $25 a week on lottery tickets doesn't strike me as literally incredible.
**Update II: Among the smart and skeptical responses to this stat, please see this post on the origin of the 9% figure. And don't miss the comment thread on this page between SteveInch and CTW34 with links to Consumer Expenditure Survey data. In brief, the CES reports that families making under $15,000 spend between 3% and 9% of their income on a "Miscellaneous" category, in which lotteries and games of chance are a subcategory.
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