In my opinion, one of the travesties of American state governments is that of the lottery. Currently, 42 states and the District of Columbia operate lotteries. As has been shown by numerous studies over the years, the primary people who play the lottery are those who can’t afford to lose the money. And while they are eager to point out that the money goes to education, they certainly aren’t lowering tax rates to give us back the tax money they have replaced with lottery income. (Yes, I know, our current tax rates might be higher had a lottery not existed, but is that just speculation?)

But overseas, where they operate lotteries, they also allow what are called “Prize-Linked Savings accounts.” These savings accounts pay interest, but also feed the innate desire in people to win something. The accounts offer prizes, to double your balance up to a certain amount, or just bonus prizes of preset amounts. In South Africa, over 750,000 accounts were opened and resulted in 1.2 billion Rand being saved (p. 4) in just two years! That’s equivalent to $154 million! One credit union in Indiana, Centra Credit Union, offers a “PLS” savings account. Kudos to them!

Wouldn’t it be in the best interests of the population of the United States (which is what the state governments are supposed to be thinking about), to encourage banks, S&L’s, and credit unions to offer these accounts and to disband the lotteries? The product would encourage savings in the lowest income groups of the population and possibly in higher income groups as well. When you consider that in 2007 over $90 billion was spent on “legalized” gambling (p. 10), wouldn’t it be better to channel more of that money into the savings pipe which could be used by businesses and government to grow our economic base? And in the process we would be enabling those at the lower income levels to start a savings plan and teach them that it is possible to better their economic situation through savings and hard work.

— Tufano, P., Maynard, N., & De Neve, J. (2008). Consumer Demand for Prize-Linked Savings: A Preliminary Analysis. http://www.hbs.edu/research/pdf/08-061.pdf.

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