A Tax on People Who Can’t Do Math

I’m still on hiatus (and still unemployed) but I spent some of what was a glorious holiday weekend in New England indoors, surfing the web and reminding myself why I started Bad Money Advice.Lottery Tickets Crop

WalletPop had a post that caught my eye. Poor people spend 9% of income on lottery tickets; here’s why.  It discusses a theory about why “poor households, with annual take-home incomes under $13,000, on average, spend $645 a year on lottery tickets, which comes to about 9% of their yearly income.”

I am not going to express an opinion on the theory, because I didn’t have the patience to read the whole post. I couldn’t get past the first paragraph. 645 divided by 13,000 is 4.96%. That confused me until I realized the statistic refers to households with incomes of at most $13,000, and not an average of $13,000. It was that phrase “which comes to” that threw me off.

Still, I’m not completely satisfied. Why $13,000? The Census has easy-to-find data on households making under $15,000, a group that accounted for 8% of all American households, and a smaller proportion of total population. (About two thirds of those households consist of only one person. I will speculate that a non-trivial portion are college students.)

It is a reasonably rough guess that under $13,000 is the bottom 5% of households. That is not exactly mainstream America. To put it in perspective, the top 5% of household income starts at $177,000 per annum. So under $13,000 is more than a little poor. And yet, those households actually spend more in absolute terms on lotteries, on average, than households in the richer 95%? (The overall household average is around $514.)

Not being one to overestimate the rationality of the American consumer, I am not about to dismiss the 9% of income figure out of hand. But it is, at the very least, awfully peculiar and the sort of statistic that, if not literally false, is likely to be substantially misleading.

The thing about looking at the very bottom rung of income level is that it includes quite a few people for whom their current income is not indicative of their true economic status: students, the unemployed, retirees, etc. These are people who typically spend more, sometimes a lot more, than they make. So measuring any type of expenditure relative to their income will tend to give you surprisingly large numbers.

That said, let’s track down the 9% number. The WalletPop post refers to a recent item at The Consumerist, one of their quickie posts that slap a few sentences around a paragraph quoted from elsewhere on the web. Their tiny bit of original content tells us that “A recent study found that poor folks – households earning under $13,000 per year – spend about 9% of all their income on lottery tickets.”

The blog post The Consumerist links to, at The Frontal Cortex, starts with the line “Here’s an old post from July 08.” So I guess recent is a relative term.

That post’s author, Jonah Lehrer, a contributing editor at Wired and author of, among other books, Proust Was a Neuroscientist, does indeed give the $13,000/$645/9% tidbit. He implies, possibly inadvertently, that it is from what was back then a recently published paper by three academics on why poor people buy lottery tickets.

It is an interesting paper, although it is not, in fact, about what WalletPop, The Consumerist, or Mr. Lehrer would lead you to believe. It makes the case that poor folks are more likely to play the lottery because they feel poor relative to other members of society, rather than because of some absolute effect of poverty.

It is possible that I just did not read the paper carefully enough, but I could not find the 9% statistic. On the other hand, I did find, in the very first paragraph of the introduction, a reference to another statistic that “households with an income of less than $10 000 spend, on average, approximately 3% of their income on the lottery.”

Given how directly contradictory that statistic is to the one cited by Lehrer in his post, I am going to assume that he did not read the first paragraph of the paper he was writing about. Indeed, I will then go out on a limb and speculate that if he did not read the first paragraph he likely skipped the whole thing. (Other than the abstract, which he quotes and links to.)

So here is what happened. Lehrer sees an interesting abstract of a new paper. He uses it as inspiration for a short riff on how lotteries don’t just appeal to poor folks, they help keep them poor. (Oh so clever! No wonder he has a job and I don’t.) Along the way he tosses out the 9% statistic.

So proud is Lehrer of this post that he re-runs it two years later, when it is noticed by The Consumerist, which knows a buried lead when they see one. Ignoring the fact that the post is actually a bit stale, and reasonably assuming that the academic paper Lehrer refers to must be the source for the statistic, they run a post with 9% of income on lottery tickets as the headline. They do not, evidently, bother to find and read the paper itself.

Which brings us back to WalletPop, where author Geoff Williams spends Memorial Day Weekend explaining to readers why it is that poor people spend 9% of their income on the lottery. He knows that they do because The Consumerist, arguably the #1 personal finance blog on the planet, says so.

This is where urban legends come from.

And from where, after all, did the 9% actually originate? This interview at Time.com (from 2009) mentions it and cites a study by something called the Commission on Thrift. I found their website. It seems to be a project of the Templeton Center for Thrift and Generosity at the Institute for American Values. (And from the Institute for American Values website, I learn it is a think tank concerned with the importance of marriage as an institution and the war on Islamic terror, as well as thrift.)

The sole output of the Commission on Thrift appears to be a report called “For A New Thrift: Confronting the Debt Culture.” The 9% is probably in there somewhere, but to find out I would have to order the book, and it costs $7. That wouldn’t be very thrifty of me, now would it?

No Comments

  • By EP, June 1, 2010 @ 2:30 pm

    Dear God,
    Please do not ever stop posting. Even it if is only once a month, these are some of the best articles on the internet.

  • By Lance, June 1, 2010 @ 4:56 pm

    I saw this on my local news last night. The 9% statistic, not the actual investigation (obviously).

  • By Greg McFarlane, June 1, 2010 @ 7:27 pm

    Frank, you will drive yourself insane if you expect the average blogger or journalist to be numerate. That the Consumerist story refers to a subject that itself exploits innumeracy makes it all the more delightful. Either that or Jonah Lehrer is playing some meta-joke on the rest of us, which I doubt.

    I live in Las Vegas, which a friend described as a city “predicated on taking advantage of people who are bad at math.” And God bless every last one of them: I’m in no rush to start paying a state income tax.

  • By Tom, June 1, 2010 @ 9:37 pm

    Frank,

    Thanks for doing some real research!

  • By Adam, June 2, 2010 @ 2:03 pm

    Frank…I must concur with EP. Don’t ever stop posting. I kept checking your blog every other day or so to see if maybe you would come out of hiding, and I’m glad I did.

    Fantastic forensic work here to dig into where that 9% comes from. You’d think if you were to base a blog post or an article on a statistic you’d go to the source study. Its not like its time consuming or expensive to do that with today’s web.

    I don’t play the lottery, but if it brings people some happiness to spend a few bucks a week on their numbers, why is that worse than spending it on a movie or some other mindless entertainment. Like the walletpop post says, they are getting something for their money even if they don’t win. Hope. or False Hope. Either way.

  • By The Head Hunter, June 2, 2010 @ 3:11 pm

    You’re the King, old man. Your writing is what got me interested in PF blogs altogether; up until then I was only getting my info from Dave Ramsey… and he’s apparently bad at math, ha ha

    Don’t stop posting!

  • By The Head Hunter, June 2, 2010 @ 3:12 pm

    PS. Playing the lottery NEVER makes financial sense until you win…

  • By Alexandra, June 3, 2010 @ 9:08 am

    So surprised to see this post since you are supposed to be on hiatus. Weirdly though, I keep checking in, just in case, hoping the result will change – I think that’s the definition of madness, no?

    Great article.

    Funny that I bought a lottery ticket the other day, even though I know it’s a “stupid” tax. I figure $4 is pretty cheap to be able to daydream about what I’d do with all that cash for a few days.

  • By mwarden, June 3, 2010 @ 10:38 am

    @EP,

    I like Frank’s posts too, but I’m not sure I would call him God.

  • By jim, June 3, 2010 @ 7:57 pm

    Frank, thanks for doing the research on this one. I saw that 9% figure and it seemed pretty doubtful to me. I think I tried googling some data on it but didn’t get very far or lost patience.

    Keep posting. I read recently that 9% of the whole American population reads this blog.

  • By Kosmo @ The Casual Observer, June 6, 2010 @ 1:11 pm

    “The 9% is probably in there somewhere, but to find out I would have to order the book, and it costs $7.”

    Maybe you could buy a scratch ticket and win the $7 you need.

  • By Charles@MoneyGreenLife, June 6, 2010 @ 8:26 pm

    I thought this post was about playing the lottery. I agree with The Head Hunter. Playing lottery only makes sense when you win. But it only takes ONE WIN, even if it takes you 20 years to purchase that one winning ticket.

  • By jimmy37, June 7, 2010 @ 8:35 am

    Well done. Reminds me of that other bogus statistic that keeps changing – the average amount of money that people owe on their credit cards. I think the latest value was $8-10,000. The number just keeps rising.

  • By Kent @ The Financial Philosopher, June 7, 2010 @ 12:39 pm

    The lottery has been called “the poor man’s tax.” I believe the purchase of a lottery ticket, however, is both cause and effect of hope. Buying tickets enables the purchaser to hope and to imagine themselves financially rich.

    Hope is not rational but nevertheless quite powerful…

    Great post…

  • By Alexandra, June 8, 2010 @ 11:01 am

    This is just like the well-known advice that you need to drink 8 glasses of water a day. Turns out this is baloney too, based on research that has nothing to do with what the average person should be drinking.

  • By Erick, June 11, 2010 @ 5:25 pm

    Read this comic…

    http://www.smbc-comics.com/index.php?db=comics&id=1744#comic

    …and immediately flashed back to this post.

  • By Really?, June 15, 2010 @ 12:18 pm

    Really? Really, Bad Money Advice? Come on.

    This was terrible. We know that the Lottery is rigged game on a long enough time line it takes more from participants (and creates some cushy government jobs) than it pays out.

    And the odds are put on the tickets so the math is pretty easily computable.

    However, writing an entire article analyzing where someone got their numbers or just plain writing an article in such a fashion that the main topic and point is not mentioned in the first four paragraphs…

    Just get a job already.

  • By Josh, June 16, 2010 @ 12:12 pm

    Something like 65% of statistics are made up on the spot.

  • By basicmoneytips, June 20, 2010 @ 6:20 pm

    The 9% statistic seems high, but you have to realize where these people come from – most are on social programs so most of their food is covered anyway. I would rather them buy lottery tickets than some other vice. For most, there is not much chance to get out of debt, so why not try their luck at the lottery.

  • By شات, April 15, 2011 @ 9:12 am

    دردشة

  • By شات بنات مصر, October 12, 2011 @ 12:46 pm

    thnaks f u

  • By Wayne Twayne, December 31, 2011 @ 5:30 pm

    I just saw this post from a link at another PF blog so this is a little late, however; In the state of Indiana, the locations credited with the largest volume of lottery ticket sales are convenience stores and gas stations in the poorer sections of cities and towns. I do think the desperation of the poor drives these sales regardless of what numerical threads you might follow.

  • By Charlie Quimby, April 2, 2012 @ 12:48 am

    That 9% number just won’t die. Megamillions stories have revived it and PBS quoting it has given it credibility. http://www.businessinsider.com/households-earning-less-than-13000-a-year-spend-9-of-their-income-on-lottery-tickets-2012-3

    I dug up the original paper, too, before finding your post. Thanks for saving me the trouble.

  • By Jack Sprat, April 2, 2012 @ 6:20 am

    Splendid post. Perhaps you would be willing to use those mad skills to re-examine the long-running Leftist canard that “3,000,000 Americans are homeless.” God knows that they (MSM at the forefront) beat that one to death all through the Reagan and Bush the Elder years; then, it mysteriously vanished when Clinton took office. Poof!

  • By Jack Sprat, April 2, 2012 @ 6:27 am

    BTW, when your rent, heat, power, water, sewer, trash, medical and food are comped by the taxpayers…that “up to $13,000″ is ALL discretionary. Oops! I forgot the free cable. Where I live, that’s comped, as well. Along with all the necessities to raise another generation of ‘little cash cows’ for mommy and her man o’ the month.

  • By Jack Sprat, April 2, 2012 @ 6:32 am

    Wayne Twayne, it might surprise you to know that that “mass of men (who) live lives of quiet desperation” are by no means all poor. Its rather a harrowing journey for many of us who’re still doing our level best.

  • By خلفيات بلاكبيري, August 26, 2012 @ 4:33 pm

    thanks for the’s

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