Event Summary: Jackpot: Using Lotteries to Promote Personal Savings

Yesterday we hosted an event along with our partners at the Doorways to Dreams Fund (D2DFund) to examine the potential of lottery-style programs and products to promote personal savings. The idea of “prize-linked savings” (PLS) emerged out of the observation that while many Americans enjoy playing the lottery or gambling, large numbers of us do not have the personal savings necessary to cope with an emergency. Researchers, advocates, and others in the field noted the existence of PLS programs in other countries and thought that a similar motivational tool could work in the U.S.--if saving was as much fun as playing the lottery, more people would participate. Pilot programs and legislative proposals have emerged to take this concept to scale in several U.S. states. You can watch a recording of the event here or read on for the key takeaways.

Justin King, Federal Policy Liaison with the Asset Building Program, welcomed the audience and framed the issue in the context of Americans’ challenges with saving. A long decline in the personal savings rate, a lack of safe and affordable basic savings accounts, and a variety of other factors have all hampered Americans’ efforts to save. The asset building community has recognized the importance of bringing saving opportunities to scale – unless an initiative reaches large numbers of people, it won’t be able to have the desired impact on many households’ financial security. Lotteries offer a unique model, in part because they are already viewed by some as the most realistic way to accumulate a large sum of money. PLS initiatives at the state level have shown promise and the concept has the potential to reach millions of people if implemented successfully.

U.S. Representative Derek Kilmer from Washington State offered keynote remarks, discussing his work to promote prize-linked savings at the state level. Representative Kilmer explained that his roots in rural and economically-struggling towns in Washington had given him first-hand knowledge of the importance of having savings on hand to help weather a job loss or other unexpected event. The legislation he worked on allows financial institutions to offer a “Save to Win” account – people contribute to the account in exchange for opportunities to win a larger sum. As Kilmer put it, “the worst thing that can happen to you is you sock away a bunch of money.” The program has received positive feedback, perhaps in part due to the leg work put in on the front end to conduct outreach and build support among diverse stakeholder groups (including credit unions, banks, Native American or tribal organizations, research institutions, and community-based groups working on asset-building and others).

Mae Flexer, a State Representative for Connecticut’s 44^th District, spoke next about the legislation she is working on and the commonalities of her experience with Representative Kilmer. Like Kilmer, Flexer has built up a coalition of credit unions, local banks, and advocates to support the idea of prize-linked savings. She described some opposition to the legislation from anti-gambling groups, who are concerned about introducing another lottery product into the marketplace. In addition to pointing out the ways this model differs from traditional gambling, Representative Flexer relied on her personal connection to this issue to address these concerns: growing up, her mother would buy lottery tickets, confident that each successive ticket would be the winning one, but never did win. Prize-linked savings offers an alternative to this pattern that couples the suspense and thrill of gambling with the security from tucking away funds.

Stuart Butler, the director of the Center for Policy Innovation at the Heritage Foundation, spoke next about the intersection of economic mobility and savings. In particular, he highlighted research that links positive savings behavior with other positive behaviors that support long-term movement up the economic ladder. Butler sees prize-linked savings as one way to capitalize on impulsive human behaviors associated with the “right brain”: the emotional side typically associated with behavior like gambling. Butler also talked about several other programs, including England’s Premium Bond program: a prize-linked savings program that has seen success in large part because of its universality. Prize-linked savings ideas help incentivize saving which can help lower-income people access economic opportunities.

Finally, Joanna Smith-Ramani, Director of Scale Strategies at the D2D Fund, discussed the state of research on PLS and offered some thoughts on where the field might be heading next. Smith-Ramani pointed to a recent D2D Fund report that looks at the structure of PLS programs and the size of prizes. Because the attraction of PLS is the thrill of winning, more frequent but smaller prizes are just as effective and perhaps more sustainable offerings to promote participation in the long run. Saving, she explained, needs to provide some form of instant gratification to keep people excited and engaged. PLS is one way to accomplish that. Smith-Ramani also discussed PLS in the context of the broader trend toward “gamification” in the field of finances. Financial education video games, apps, and other tools have emerged as ways to reach consumers in new ways. Both state and federal policy can play a role in this field by smoothing the legislative path to implementing PLS programs.

Ultimately, the panelists are in agreement that PLS offers a promising approach to increasing saving opportunities for people of all income levels. Lower-income people in particular may benefit from this approach because it offers the combined thrill of the lottery experience with the added benefit of building up a savings cushion. Research from pilot programs and results from the work happening at the state level can be used to bolster support for PLS in new states or even the federal level.