🔢 Key Takeaways
- Prize-linked savings accounts offer a unique way to incentivize savings and could be a solution to America's savings crisis, despite being illegal in the US (with a few exceptions in Michigan).
- State lotteries make billions annually by regulating an already popular activity. Despite high government rakes and low chances of winning, people of all backgrounds participate. The industry behaves like a monopoly and constantly innovates to grow revenue.
- Prize-Linked Savings Plans, which offer potential lottery winnings for saving money, could help lower-income households save more, but regulation needs to be reconsidered to make these plans fully legal and accessible to all.
- Prize-linked savings plans are a way to incentivize saving while also offering the chance to win prizes. It can be a useful tool to fund important causes and education, especially for those with lower incomes or who are unbanked.
- Instead of spending money on low-probability lotteries, consider participating in prized-linked savings programs. These programs are often constrained by state gaming laws, but innovative solutions are needed to encourage American families to save.
- Prize-linked savings plans can encourage families to save more money by offering a chance to win a big prize. While research is uncertain, programs like Save to Win have had success in increasing deposits and making saving more appealing.
📝 Podcast Notes
The Excitement of Gambling, the Practicality of Saving: Prize-Linked Savings Accounts
Prize-linked savings accounts (PLS) offer the excitement of gambling with the practicality of saving. In PLS accounts, customers who save money are entered into a lottery for a chance to win large sums of money. This incentivizes savings for those who may not otherwise have the means or motivation to save. Despite being popular in 20 countries around the world, PLS accounts are currently illegal in the US as they are considered a form of lottery. However, a loophole in state law has allowed a small group of credit unions in Michigan to offer the Save to Win program with great success. This innovative concept offers a potential solution to America's savings crisis.
The Profitable Industry of State Lotteries Explored
State lotteries generate billions of dollars in annual sales by taxing and regulating an activity that was already prevalent. More than 75% of New Yorkers play, leading to $7 billion in sales. However, the rake taken by state governments can be as high as 60%, with as little as 40% going into the pool to pay winners. Despite this, people of all socioeconomic levels play the lottery, with roughly 50-60% of men, women, high school dropouts, and college graduates participating. While lotteries are meant to replace illegal gambling, they often behave like monopolies, constantly innovating and marketing to increase revenues. Overall, the state lottery is a highly regulated but profitable industry that has become ingrained in American culture.
Prize-Linked Savings Plans: A Potential Solution for Boosting Lower-Income Household Savings
Lower-income households spend about as much in dollar terms as higher-income households, but it's a larger share of their total spending. Prize-linked savings plans could help America's savings rate, but a law from the 1930s prohibits banks from engaging in lottery activities, which also affects savings programs. American states and localities rely on lotteries to close public finance deficits, and private parties are prohibited from running lotteries. This has led to prize-linked savings plans being outlawed. However, some state-run lotteries have considered PLS plans. It's clear that laws and regulations need to be reconsidered for PLS to potentially benefit lower-income households without hindering public finance.
Prize-Linked Savings Plans: A Fun and Unique Way to Encourage Saving
Prize-linked savings plans are a way to encourage savings among low-income people and the unbanked by allowing them to win prizes through investing the pooled funds. While it has been successful in some states, it is still considered illegal in others due to gambling laws. Lottery games generate a lot of money for states, but people mainly play it to win prizes and not to support education or other causes. However, prize-linked savings plans can be a fun and unique way to fund education and other important things, while also providing excitement and the possibility of winning for participants.
Prize-Linked Savings Programs as an Alternative to Lottery: Exploring New Ways to Encourage Savings
The probability of winning money from the lottery is low, making it a poor use of one's limited resources. However, alternative approaches to encourage savings, such as prized-linked savings programs, should be considered. The legality of such programs is often hampered by state gaming laws. The Treasury may not prioritize advocating for widespread deployment of such programs, but it should continue to innovate and explore new ways to encourage savings among American families.
Can Prize-Linked Savings Plans Incentivize Saving?
Prize-linked savings plans (PLS) offer a way to incentivize saving in American families. While research is inconclusive, Michigan's Save to Win program has taken in $18 million in deposits this year alone, and Rhode Island and Maine have passed legislation to give PLS a try. PLS is a big neon billboard that turns a boring savings account into an exaggeration of itself, offering the possibility of a big payday. In a country where it's easy to borrow your way to bankruptcy and buy lottery tickets with ease, PLS can provide a stronger incentive to save. For many, the abstract nature and distant payoff of saving for retirement or emergencies is not compelling enough. PLS offers a solution - good smoke and mirrors - making saving more appealing.