Who Really Wants to Be a Millionaire?

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Game shows are making a comeback. Traditional stalwarts Jeopardy! and Wheel of Fortune enjoy steady popularity, but Who Wants to Be a Millionaire?, with its million-dollar prize for the person who correctly answers 15 multiple-choice questions, has rekindled excitement, garnered top ratings and spawned at least two imitators on network television. Lotteries are also a national obsession, as nine-digit jackpots entice players from nearby states. Clearly, the chances of winning a lottery or becoming a game show "returning champion" are astronomically small, so why are so many people entranced by the allure of big bucks at incredibly long odds?

A Consumer Federation of America/Primerica poll in October 1999showed thata majority of Americans think it is easier to get rich by winning a lotteryor sweepstakes than by saving and investing modest sums of money. It seemsinconceivable that the little bit of money you could invest would ever turninto the millions a lottery jackpot offers. Might as well try to get luckynow, right?

Many people seem to think so. Millions of viewers tuned in onNovember19th to watch John Carpenter walk away from Millionaire with one milliondollars (before taxes, of course), the largest prize ever won on atelevision game show. How hard would it have been for John to accumulatethat much wealth by investing? According to an upcoming Cato Institutestudy, if John put $2 a day into a stock fund that has the historicalaverage return of 11 percent per year, it would take him only 50 years --the career-span of an average American -- to amass just over one milliondollars.

Other game shows don't offer the big prize that Millionaire does,but weoften feel that the winners on those shows are rich and enviable because ofthe amounts they win. But when you look at how modest their winnings trulyare, it makes you wonder why we should be impressed.

The biggest all-time winner on Jeopardy!, Bruce Seymour, won a totalof$305,989 by 1990. If Bruce were to undertake a $2-a-day savings plan andbuild up equity in a mutual fund, he would have the same amount after 30years. And his odds of achieving that would be orders of magnitude greaterthan his odds of winning on Jeopardy!Wheel of Fortune's biggest winners, Peter Agryropoulos and Deborah Cohen,won a total of $146,529 in cash and prizes during Sweetheart's Week in 1996.Saving $2 a day in a mutual fund that tracks the market would yield thatamount in about 20 years.

Perhaps most people don't save because the government taxes awaymost ofthe gains to be had by saving. Someone in the 15 percent tax bracket (forinstance, a single person making roughly $30,000 a year) who saves $1,000 ayear for 20 years would lose 30 percent of the potential gains from savingthanks to the income tax's bias against saving. Saving for longer -- say,50 years -- brings the tax loss to 50 percent. A worker's realization thatthe current income tax code double-taxes savings -- the money earned asincome is taxed, and then the earnings of the saving are taxed -- may bepart of the reason so many people don't save very much.Also consider the Social Security payroll tax, which takes 12.4 percent ofevery worker's earnings to support a government pension system that iscareening toward insolvency in 2034. What if our Millionaire winner, John,put 10 percent of his income over the course of his lifetime into a personalretirement account? He obviously would not face poverty after retirement.He'd be practically guaranteed a nest egg that would make his recentwinnings seem much less than impressive. And if he died before he depletedhis savings, he'd still get to pass on all that wealth to his heirs. Theonly thing Social Security passes on is debt to future generations.

Game shows and lotteries are dreams come true for few. Saving andinvesting can be a reality for all Americans. The government shouldencourage the accumulation of real wealth by turning Social Security into apersonal savings plan and scrapping an income tax code that punishes saving.With a little discipline and some long-term planning, almost anyone can be awinner in wealth. And you don't even have to know which U.S. presidentappeared on Laugh In.