Sitting on my high horse it’s easy to make quick judgments about how the poor end up poor. We learned yesterday that anyone in any income class is most likely to stay in that income class (as opposed to moving up or down). So they poor start out poor and end up poor, but why?

Well in order to get out of being poor the process seems fairly simple from the outside looking in. Go to school, get decent grades, then go to college and major in something that can make a decent wage. But it doesn’t happen as often as it should. Something goes wrong somewhere. Again, from my high perch the explanation is pretty easy. Sometime, somewhere, people make bad decisions. Maybe someone joins a gang, or starts doing drugs. Or a fairly common scenario is the birth of a child. One way or another they make bad decisions, and it holds them back from moving into a position to have more money. I don’t have proof that these things occur more often than they do in other income classes, but my high horse judgment probably isn’t far off.

Another thing that holds back the poor is of course money. They don’t have a lot of it. So maybe they spend all their extra money on basic necessities and still have trouble making ends meet. Well, my bad decisions theory is about to get a little more support. As it turns out, households with less than $13k a year in income spend 9% of their income on lottery tickets. If lottery tickets were even a decent gamble this might not be as sad. But they return 53 cents on the dollar, which is worse than a slot machine. That is simply a bad decision.

What could you do with 9% of your income? You could invest it, you could SAVE it (and get $1.01 for ever dollar which is a huge improvement). Or you could use that money to further help make ends meet. Unfortunately, it’s not all the fault of the poor. The lottery companies actually use marketing tricks that get the poor to buy lottery tickets. The link above goes into more detail about that.

Knowing things like this makes me feel guilty about supporting lotteries. But in the end, I believe people have a right to make their own decisions irregardless of marketing and social influence. People are still responsible for these decisions. But, if a state decides to end their lottery system, I won’t be upset about it.

***UPDATE*** As pointed out in the comments, the 9% figure may not be accurate.  A fellow blogger whom I highly respect obsessed over that number and could not find proof that this was true.  Personally, I’m less concerned over the 9% number and more concerned with the fact that the poor do spend more on lottery tickets (in absolute and relative terms) than the rest of us.  This I do have proof for.

Of people making less than $10k a year, they spend almost $600 on lotto tickets.  If they make $10k, then $600 is 6%.  If they make less, then that is a greater percentage of income.  Also not surprising is the fact that high school dropouts spend more on lotto tickets than any other education level.  My worries about poor people making bad decisions with money can’t change until a different income class is spending more on lottery tickets.  Please see Clotfelter, Cook, Edell, and Moore, 1999. page 32, table 10.  There are some other interesting conclusions to be drawn there.

Via Consumerist

Photo: Mr. T in DC

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categories: economics, government, personal finance