Is buying a lottery ticket the best chance to build a nest egg for retirement? That may sound silly, but nearly a third of Americans in a recent survey said that winning a lottery or sweepstakes is their best chance to obtain a half million dollars or more during their lifetime.
People with the lowest household incomes were the most likely to bet on the lottery rather than saving small amounts of money over a long period of time as the way to accumulate a nest egg for retirement. The survey was sponsored by the Consumer Federation of America and the financial services firm Primerica.
“If Americans understood that their chances of winning a big lottery jackpot were 10 to 20 million to one, but that they could accumulate hundreds of thousands of dollars through regular saving, more families would put $50 away rather than spending it on gambling or unneeded consumption,” said Primerica Chairman Joseph Plumeri.
A mere $50 per week invested for 40 years at 9% interest adds up to more than $1 million. Weekly savings of $25 over 40 years at 7% interest add up to $286,000. Most Americans surveyed guessed it would be less than $150,000.
Stephen Brobeck, director of the Consumer Federation of America, said he doesn’t believe banks and brokerage firms have done enough to educate Americans about ways to invest even small amounts of money profitably.
“There are decent savings options out there for any household,” Brobeck said.
Gray Wiggers, marketing director, Trustmark National Bank, said each family is different, and their savings goals will vary depending on age and other factors. Trustmark encourages savings by having financial services representatives trained to interview a customer or prospect to determine their individual or family’s needs, and then matching their needs to the bank’s products.
The bank’s Web site, www.trustmark.com, also has a calculator for both savings and loans. People can calculate how much they need to save with different instruments over a period of years in order to meet their financial goals.
Mississippi has the lowest per capita income in the nation, and so it would be expected that many individuals in the state simply don’t have enough money left over after basic expenses to save very much for retirement. However, there is more than one way to save for a secure retirement. Dr. Phil Pepper, state economist, said that many people in Mississippi are saving for retirement by buying their own home. Mississippi residents have one of the highest rates of home ownership in the nation.
“I believe that’s where people put a lot of their savings,” Pepper said. “As they get towards retirement, they don’t have monthly rental payments and housing costs are not a problem.”
Pepper said people with more education and higher salaries are the most likely to be putting away savings each month. These people have money left over after meeting their basic needs each month. Many Mississippians, on the other hand, are not wealthy, live from paycheck to paycheck, and never get in the habit of putting money back and worrying about retirement.
In a rural state like Mississippi, not everyone plans to retire.
“They have a small farm, for example, and plan to continue to have income from the property,” Pepper said. “That is different than someone working in New York with no source of income like that. I don’t know rural people do this on purpose, but it works out that way. So historically people in rural areas haven’t worried about retirement as much as in urban areas.”
Pepper believes that more public awareness of the opportunity for growing retirement savings will be needed as the state becomes more urban.
“We probably need an education program for people,” Pepper said. “It is up to people once they have knowledge to invest or not. But too often they don’t have the knowledge. Older people get literature from financial institutions, but they don’t understand it and are scared of it. It goes back to public education.”
Education is also needed so people don’t think a lottery is their best chance for a retirement nest egg. But even being educated that their chances of winning the lottery are 20 million to one won’t necessarily be a deterrent. Pepper said people may be willing to buy a lottery ticket because they think of a retirement nest egg as being out of their reach.
“So they go for a big hit,” Pepper said. “They are willing to take a chance, because winning big means a lot to them.”
Savings accrue the most handsomely when left to accumulate over a long period of time. Pepper believes children should be taught about the principles of compound interest and how that can build wealth.
“I think children should be made more aware of it,” Pepper said. “The average teenager wouldn’t worry about it much. But as they get into their 20s and 30s, they should be aware of the opportunities.”
The Mississippi Legislature has acknowledged the importance of teaching principles like compound interest to children. House Bill 820 passed by the legislature in the 1999 session requires the educators to develop personal living and finances objectives that focus on money management skills for individuals and families for existing courses at the secondary level. The objectives must require the teaching of those skills necessary to handle personal business and finances and must include instruction in money management skills.
Just as buying a home might not be thought of as saving for retirement, savings for children’s college education normally wouldn’t be considered retirement savings. But while they may not think of it as such, Pepper says that parents who are putting back money for their children’s education are also helping prepare for retirement. For example, by investing in the state’s MPACT program to prepay college tuition, when children are in college the parents will be in better shape to save for their retirement.
“MPACT is good from the perspective that young parents think more about the college education of their children than they do about their own retirement,” Pepper said.
Contact MBJ staff writer Becky Gillette at firstname.lastname@example.org.