Can prize-linked programs encourage Americans to save?
Editor’s note: This piece was originally published on Dec. 15, 2013.
Tonight on NewsHour Weekend, we look at credit unions in four states offering a lottery that gives savers the chance to win small monthly prizes or a yearly grand prize — but even if you don’t win you get to keep the money you put in, plus interest.
To learn more about prize-linked savings, NewsHour Weekend Producer Sam Weber spoke with Joanna Smith-Ramani, Director of Scale Strategies for D2D Fund.
D2D Fund aims to strengthen financial opportunity for low and moderate income consumers through new products and policies, according to the organization’s website.
SAM WEBER: What is it about prize-linked savings that you think works so well as an incentive to get people to save?
JOANNA SMITH-RAMANI: I’ve yet to meet a person who didn’t want to win something — who didn’t want fun and excitement in their life — and doesn’t seek entertainment in some way.
Across the board, across incomes, across who you are, these are things people like. And you almost never see that in a financial product. So the combination of the two is a pretty unique thing that doesn’t end up being gimmicky and seems to last — especially in the international experience — over decades.
So these things, once they are linked, seem to have really tremendous compatibility that we didn’t think it did before. And that attracts all kinds of folks, but particularly folks who haven’t saved before because there just wasn’t anything kind of fun, exciting, attractive, to focus their attention away from all the other demands in their lives.
SAM WEBER: Beyond Save To Win, what are some of the applications of prize-linked savings that are underway in the U.S. right now?
JOANNA SMITH-RAMANI: We are working closely with different states to try to build a model that leverages the infrastructure of a state’s lottery system. We think this is so promising and we’re really excited about that.
Because what you get from lottery is huge distribution infrastructure and largely in neighborhoods with folks who we are most concerned about – people who are financially vulnerable.
So you get that huge infrastructure and you get intelligence from the lottery system on how to run games and how you get people engaged.
It’s being able to leverage that knowledge base about the product that is really exciting. And you get name brand. Lottery is everywhere. You aren’t trying to convince folks who haven’t been saving to go into a bank somewhere or go into a credit union – so they could really impulsively do this.
You go buy your milk, you go buy a coke, and also pick up a savings lottery ticket. So it really democratizes savings in a lot of ways because you can really get it out to the masses in what could be a more efficient infrastructure.
SAM WEBER: So what exactly would that look like?
JOANNA SMITH-RAMANI: The simplest way to think about it is — I’m a consumer, I go into my local drugstore and along the wall is this opportunity to get a savings ticket.
So, imagine it’s a scratcher — you scratch, you might win, you might not. You pay 10 dollars for your scratcher and that 10 dollars is yours — put into a savings account for you, if you think of it that way — and you are also entered into a chance to win.
Then you take your scratcher, you go online, to a mobile app, you call a phone number, and you register your scratcher with the state.
So essentially you identify yourself to the state and say: I opened up this account, bought this 10 dollar scratcher, I need you to allocate that scratcher to me. And now my account is set up with the state, so I can buy another 10 dollar scratcher, or my mom can put one in my Christmas card and I can keep building it.
So I have the original chance to win when I scratched it, and then you can imagine there would be other weekly, monthly, annual drawings on the money I keep in that account so that encourages me to keep that savings and not just redeem it and get my 10 dollars back.
SAM WEBER: Isn’t there a sense that, you know, when you are a kid you were taught that as you get older you’re supposed to save money for retirement or whatever else? Why should we have to turn this into a game? Isn’t this something we should all be doing?
JOANNA SMITH-RAMANI: We all don’t learn that anymore, is one thing.
I mean that’s why there’s a whole host of advocates out there trying to mandate high schools and junior highs and elementary schools to have economic education.
It just simply doesn’t happen anymore. Perhaps if we did we wouldn’t need to game-ify things — but there’s a huge generation of folks, myself included, that it just simply wasn’t part of your curriculum to learn that.
And if you do not have parents who teach you, or you do not have parents who have those skills themselves, why would we expect that people just know this? It’s not intuitive necessarily to know how to manage your finances.
It is probably intuitive to say to yourself: I don’t want to be destitute and I want to have some savings. But think about the energy, the money, the creativity spent in this country to try to get us to buy and buy and buy. And then the small, creative, but nowhere in comparison of resources effort to get people to get people to think more about savings and financial security and planning for the future.
So this is like a David and Goliath situation and we need to do our best to be just as creative — just as thoughtful, just as in tune with the literature and science about behavior and behavioral economics and leverage those to build consumer products and experiences that help them.
SAM WEBER: So when was the last time you played the lottery?
JOANNA SMITH-RAMANI: I probably played it last at Christmas myself. My sister always puts lottery tickets in our stockings every year.
Additional funding provided by Citi Foundation