Illustration: Peter Berkowitz

Worth Considering: Lotto Fever Can Spur Savings

Proponents say prizes encourage people to save money

February, 2016

Americans spent $70.1 billion on lotto games in 2014, according to the North American Association of State and Provincial Lotteries. That’s $300 per adult, and it’s spent disproportionately by low-income people. In poor neighborhoods, lotteries are often used as a Hail Mary attempt to get rich, but the odds of winning are so bad that almost everyone just digs themselves deeper into poverty.

Meanwhile, Americans in general only stash about 5 percent of their income into savings. Proponents of prize-linked savings accounts say they can be a solution to
both problems.

Some credit unions on the mainland have embraced these PLS accounts. Typically, for every $25 deposit, credit union members receive a chance to win monthly and quarterly drawings for prizes, worth anywhere from $25 to $5,000. Every additional deposit, up to 10 per month, earns more chances to win. The Save to Win account needs to be kept open for 12 months, and there are penalties for early withdrawal.

Six states currently have Save to Win programs, and New York has a similar Lucky Win program. “This has been almost 10 years in the making, with pilots in Indiana and Michigan,” says Tim Flacke, executive director at D2D, a nonprofit based in Boston that helped bring the concept to fruition. “Across the board, everyone values saving. How do you make them succeed? How do you make savings fun? PLS has an element of excitement and the real possibility of reward. That subtle difference gets us to show up and get started.”

In North Carolina, Greensboro Municipal Credit Union has 120 members participating in a PLS. “Many of the members are amazed at how much they have saved,” says president/CEO Jerry Wise.” It may not seem like much to you or I, but to some, saving a couple of hundred dollars a year is a huge step in the right direction.”

The passage of the American Savings Promotion Act, signed into law in December 2014, made it easier for states to create such programs. It amended the federal criminal code to exempt any savings promotion raffle from the prohibition against illegal gambling businesses. However, policy change is still required at the state level.

Bankers in the Islands remain nervous. “Hawaii is one of only two states in the country that does not allow any form of gambling and there are statutes that strictly govern raffles and lotteries,” says Edward Pei, executive director of the Hawaii Bankers Association. “Therefore, it is unlikely local financial institutions will venture into this space with deposit products that might have a gaming component linked to them.”

“There was a bill introduced in 2012 in Hawaii and it was roundly disliked,” says Flacke. “From what I understand, it was seen as gambling and I applaud them for feeling this way: that it’s a camel’s nose under the tent of gambling being legalized in their state. But this is something designed to help people, and there’s a difference between risking money and not risking money. Most important, this can be baked into the legislation from the get go so it’s clear. We are clear this is not a lottery, but it is an issue that states need to address.”

Douglas Ward Mardfin is a retired economics professor who lives in Hana and is the precinct president for the Democratic Party. He calls PLS “a fantastic idea,” and one that he’s brought up formally with his party and with his credit union.

“I am against legalized gambling,” he says. “With a lottery, you put money out and don’t get anything back. With a PLS, you are being encouraged to do something good, and you’ll have savings at the end of five or 20 years.”

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Kathryn Drury Wagner