The $70 billion Americans spend on lottery tickets represents a substantial share of their disposable incomes. That money could be better spent on paying off credit card debt, saving for retirement or sending kids to college. But even small purchases of a lottery ticket or two add up, especially if they become a habit.

The profits made by the lottery system come from the small percentage of winning tickets sold, commissions for retailers and overhead for the lottery company. In addition, the retailer who sells a winning ticket can earn a bonus for cashing it in. Retailers also get a higher commission if the ticket wins a big prize, such as the $56 million jackpot that was won in 2021.

Super-sized jackpots drive lottery sales because they attract attention and free publicity from news sites and broadcasters. But it is possible to win a smaller jackpot, which often does not generate much interest or make the news. To encourage players, the game has evolved to allow jackpots to roll over more frequently and become even larger.

When a winner does win, he or she must decide whether to receive a lump sum or an annuity payout. Each option has its own set of trade-offs, and the choice ultimately depends on financial goals and state laws.

Outside of winnings, the rest of the money from lottery tickets goes back to the states. While individual states have flexibility on how to use the money, many of them put a large portion toward education, gambling addiction recovery and general funds to address budget shortfalls and invest in infrastructure.