Lotteries: The invisible hand that built colonial America
Lotteries and the lottery systems are actually more American than most people realize. In the 1700-1800s, lotteries were instrumental for government operations to facilitate the settlement of North America. In fact, Jamestown, America’s first British colony, relied on capital from rich investors, the 17th century equivalent of venture capitalists. Raising money through lotteries was a normal practice at that time; it wasn’t viewed as sinful gambling by the Puritan population – it was a supportive civic duty. Even the Archbishop of Canterbury couldn’t resist and lent his “good name“ to lotteries, which funded the British Museum and Westminster Bridge. The original thirteen colonies in America were supported through the sale of lottery tickets, and lottery money assisted with the construction of parts of the famous campuses of Harvard, Yale, Columbia, Brown, Princeton, and Dartmouth, giving the public tangible monuments attributed to their lottery participation.
The emotional pull
The perception of the lottery has changed since colonial America, but the emotional allure of winning a huge prize has remained steadfast. In a British survey, 22% of people expect to win the lottery jackpot in their lifetime. This belief isn’t unwarranted when we examine B.F. Skinner’s work in the 1960s. He’s famous for an experiment with pigeons, pressing levers that created the Skinner box, which worked by manipulating basic psychological principles of tension and release:
“When the pigeons pressed a lever, they received food. But when Skinner altered the box so that pellets came out on random presses — a system dubbed variable ratio reinforcement — the pigeons pressed the lever more often. The absence of a pellet after the lever is pressed creates expectation that finds release via reward. Too little reward and the pigeon becomes frustrated and stops trying; too much and it won’t push the lever as often.” (source)
This action is essentially a slot machine designed to keep players hooked. It’s not hard to imagine why many people feel that they are destined to win the lottery – even animals get trained by the sporadic rewards!
In 2015, Italians mortgaged their homes, four people died, many others lost fortunes and ran up debt in pursuit of an elusive lottery win. This wasn’t even the first time lottery fever took hold of Italy. The emotional grip of a potential lottery win is powerful.
Gambling and everyday Americans
Examining lottery data shows that 5% of players are responsible for 54% of lottery sales, the majority of whom are low income earners. Lottery corporations manipulate people’s emotions and play on their hopes and dreams of becoming the one lifted from poverty with a ‘golden ticket’. Culturally, Americans have been seduced by fantasies of grandeur which are supported by the American Dream – ‘it could be me next!’ The advertising that surrounds Powerball winners splashed across the newspaper makes winning seem effortless, convincing 38% of Americans earning less than $25,000 income per year, that the lottery is the path to accumulating wealth. During the 2008 recession, more than half the states in America saw an increase in lottery sales.
Investor lesson: Do your homework
Researching a new subject is a wise first step before embarking on an activity that will cost money, whether that be investing or learning to snowboard. It’s always good to know what your wallet may be in for. Since we’re striving for financial literacy, it’s worth taking time to learn the basics which create a solid foundation of knowledge from which to build and develop your investment skills. It’s kind of like building muscles at the gym; when you first start going it’ll be new, difficult and confusing, but you’ll gradually learn and become more confident.
Take your time to learn about yourself and the groundwork on some investing basics:
- How much you could afford to invest (all small amounts are a step forward)
- Basic investment types (Reg. CF a/k/a equity crowdfunding, OTC Market stocks, etc.)
- Why household lottery money is much more productive – for generations – if allocated to equity crowdfunding
- Basic investment terminology
Mom was right, knowledge is power
Investor Lesson: Stay away from easy things
The simple beauty of a lottery is in its ability to raise a huge sum of money rather quickly and easily. But that comes at a high cost to vulnerable people. It’s tempting, but resist the urge – good things come with time.
With gradual and appropriate-sized investments, equity crowdfunding is now a reality for everyday Americans looking to build wealth. People can invest amounts as low as $10 in the businesses and startups they know and like. If budgets allow, investing a small amount each month is a smart and safe way to gradually create a portfolio of equity you’re passionate about. After spending time learning about equity crowdfunding and examining your personal financial snapshot, of course.
For a long portion of human history, governments and people have turned to lotteries to raise money for services they typically do not want to pay for. That includes everything from schools to churches. Combined with the human desire to bet on the odds of transforming their lives through luck, it’s no wonder the lottery rakes in huge sums of money.
With the arrival of equity crowdfunding in the financial scene in 2016, there’s a relatively new path for everyday Americans looking to build sustainable wealth that doesn’t include a scratch-off ticket. Learning the basics by educating yourself and starting with small investments of money is a responsible way to learn and build wealth.
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