Savings Lotteries: It’s Really No Gamble

Getting the same thrill from putting money into savings as one would get from buying a lottery ticket? Seems far-fetched, but various credit unions and other organizations see use of prize-based initiatives similar to lotteries as a means to encourage low-income families to save.

In a bit of irony, even conservative groups reportedly have joined with liberal poverty advocates in backing such initiatives, known as prize-linked savings (PLS) accounts, which provides customers with a prize-winning raffle ticket with each deposit. Conservatives like the market-based approach and personal responsibility behind the programs.

According to the New York Times, such accounts are gaining momentum, as advocates for helping the poor see them as helping change financial habits. Traditional state-run lotteries, they contend, are simply a waste of money and don’t encourage practical financial planning. Instead, they serve to “tax” the poor unfairly, as many such citizens see lotteries as their only potential way out of poverty.

In one example the news source cited, Doorways to Dream, a Massachusetts-based nonprofit organization, helped start Save to Win in Michigan five years ago. It has since expanded into other states, including Nebraska, Washington and North Carolina. Thus far, it has helped to create 50,000 accounts, accumulating savings totaling $94 million. Not all remain open, however.

Through the initiative, account holders buy shares in one-year certificates of deposit at a participating credit union. They receive an entry in a monthly lottery for every $25 share they invest.

The Save to Win program also awards a total of 26 cash prizes ranging from $25 to $100 each month, as well as quarterly prizes ranging from $500 to $1,500. Credit unions also have the option for awarding their own varying cash prizes to members who sign up for Save to Win.

“I didn’t have $500 to start a CD, and when they said it was only $25, I knew I could do that,” Cindi Campbell said in the Times article. “I got addicted when I won $100, and I was thrilled to death.”

Save to Win is open to anyone, but the program’s director, Joanna Smith-Ramani, told the Times most depositors as “financially vulnerable,” with either low incomes or no history of savings.

Seven credit unions in North Carolina joined the program in 2013 after the state lawmakers gave their approval. Altogether, some 1,908 participants saved an average of $1,246 each, for a total of $2.38 million. They enticed participation through the 26 cash prizes plus quarterly prizes of $500 to $1,500 and one $30,000 jackpot, according to the Times.

Campbell, for example, told the Times that, before Save to Win, her deposits were mostly $10 or $15, but she raised them to $25 to earn a raffle entry. That pattern is not unusual.

Indeed, research has found that PLS initiatives encourage people to save at higher rates. In a report last year, the Heritage Foundation noted that such initiatives aren’t actually gambling but give a similar effect to the participants.

“In prize-linked savings the stake is not at risk (even as it is, say, when investing in stocks). While the PLS saver can increase his holdings through monetary prizes, even the “loser” in PLS ends up with accumulated savings,” according to the report. “No wonder that one of the first major examples of PLS, launched many years ago in the United Kingdom, was described as “savings with a thrill.”