In the fickle hands of Lady Luck

Stapleton is not the only one leaving his financial planning to Lady Luck. While Canadians pumped a record $23 billion into RRSPs last year, an increasing number are betting on a quicker route to wealth. Spending on lottery tickets totalled more than $3 billion last year, compared with just over $1 billion in 1985, according to Statistics Canada. Expenditures on other forms of gambling--mainly casinos and video lottery terminals--are rapidly catching up, reaching almost $1.9 billion last year. Broken down by household, the most recent figures show that in 1992, 69 per cent of Canadian families bought lottery tickets, plunking down an average of $225 a year. "But people usually report maybe only half of what they actually spend on lottery tickets," says Katherine Marshall, the author of a recent Statistics Canada report on the gambling industry.

Most ticket buyers realize there are better ways to invest their money, but the fantasy of instant millions is still seductive. That is understandable, but in the long run, lottery players are likely to make more money from an RRSP, says Dave Chilton, the author of the popular financial planning guide The Wealthy Barber. "There's nothing wrong with having some fun," says Chilton. "But if you look at the mathematics, a lottery in essence is giving your money away."

In fact, a lottery player like Stapleton, spending $25 a week on Lotto 6/49 over 20 years, could expect to lose half his money--about $13,000 says Dr Fred M. Hoppe, Professor of Mathematics and Statistics at McMaster University in Hamilton. He recently posted some lottery probability information on the Internet. Based on a typical Lotto 6/49 draw, Hoppe calculates that, over 20 years, Stapleton could expect to win about 459 fifth-place prizes of $10 and 25 fourth-place prizes averaging $73.50 each. But even after two decades, the chances of winning a bigger prize would be slim. Statistically, Hoppe works the expectations out to .47 third-place prizes of $2,300, .01 second-place prizes of $131,934, and .00185 jackpot prizes of $2.2 million. "These numbers are averages, or expectations, rather than certainties," he cautions. In the final analysis, the odds against making a million are about 14 million to one. Lottery players are more likely to be hit by lightning, notes Hoppe--the odds there are 21/2 million to one.

A RRSP mutual fund, on the other hand, may not earn a million dollars, but at least investors stand to make some money, says Brian Davis, a partner with The Aurum Financial Group, a Winnipeg financial planning firm. Between August, 1976, and August, 1996, putting $100 a month into the AGF Growth Equity Fund, for example, would have earned $101,744, for a rate of return of about 12.2 per cent. "There's no magic to creating wealth," says Davis. Begin by paying off your debts, then start investing, remembering always to "pay yourself first." It's a lot more satisfying--and profitable--than paying your provincial government lottery.

JOHN SCHOFIELD