The Basics of the Lottery

The lottery is a game of chance where winners are selected through a random drawing. Typically run by state or federal governments, lottery games are similar to gambling and can offer large sums of money for small investments. This article explains the basics of lottery in a simple way that can be used by kids & teens or as a money & personal finance resource for parents & teachers.

The first recorded public lotteries to distribute prizes in the form of money were held in the Low Countries in the 15th century to raise funds for town repairs and for poor relief. Benjamin Franklin even tried to hold a private lottery during the American Revolution, but his attempt was unsuccessful.

Lotteries are a popular source of revenue for state governments. Unlike taxes, which are seen as unfair and unpopular by the general population, lottery revenues are viewed by voters as a “painless” source of funding for public services. The popularity of the lottery has prompted politicians to seek ways to increase its revenue, including by adding new games.

The prize amounts in a lottery are calculated by multiplying the number of tickets sold by the number of tickets with matching winning numbers. The total prize pool may be paid out in one lump sum or in an annuity, where the winner receives the prize in annual payments for three decades. In either case, the final payment is based on an annuity formula that takes into account a 5% annual inflation rate.