Prize-linked savings programs a win-win option over lotteries
David Blankenhorn, Deseret News, 9/12/2014
Large and growing numbers of American households don't save much. This is not good. Saving money over time – spending a bit less than you earn each week – has always been the fundamental American strategy for rising into the middle class and staying there. Most nonsavers are poor people and people of modest means. It's true that saving is easier if you aren't financially strapped, but it's equally true that not saving is a good strategy for staying poor! The most important thing to know about saving is that it's a habit: The essential practice is regularly putting away small sums of money.
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More by: David Blankenhorn
Large and growing numbers of American households don't save much. This is not good. Saving money over time – spending a bit less than you earn each week – has always been the fundamental American strategy for rising into the middle class and staying there.
Most nonsavers are poor people and people of modest means. It's true that saving is easier if you aren't financially strapped, but it's equally true that not saving is a good strategy for staying poor!
The most important thing to know about saving is that it's a habit: The essential practice is regularly putting away small sums of money.
On the other hand, Americans spend billions of dollars each year on lottery tickets. This is not good. Lotteries are giant, state-run fleecing operations in which people buy hope for cash. Virtually all regular lottery players lose money – if you want your dollar to do you some good, buying a lottery ticket is about as productive as setting the dollar on fire to warm yourself for a moment.
Most regular lottery players are poor people and people of modest means. In fact, spending money each week on lottery tickets is a good strategy for staying poor!
The most important thing to know about playing the lottery is that it's a habit: The essential practice is regularly spending small sums of money on the tickets.
Does anyone see the connection here? Gov. Sam Brownback of Kansas saw it. That's why in 2010 he invited me and my colleagues at the Institute for American Values (the think tank I direct) to develop a new program called "Kansas Saves." The basic idea was to create convenient opportunities for regular lottery players to save money, while still being eligible to win prizes.
Picture how it would work: If you walk into almost any convenience store today in Kansas (or, for that matter, in most states), you can buy a lottery ticket. But what if, in that same store, alongside the traditional lottery tickets, you see a new kind of ticket for sale? It's called a savings ticket. If you buy one, two things happen.
First, the money you spend on it remains your money – every penny goes directly into a savings account in your name and controlled by you. After that, each time you buy a savings ticket, the same thing happens – everything you spend is added to your savings.
Second, you'll be eligible to win prizes. No, you won't win mega-millions. The prizes are donated by businesses and civic organizations. But you might win a car, a weekend vacation or tickets to sports or music events.
So in one way, buying a savings ticket is like buying a regular lottery ticket – you may win a prize. But in another way, it's completely different. You'll never lose. Every ticket wins because every ticket helps to increase your wealth over time.
We conducted a statewide survey documenting the extent of undersaving and nonsaving in Kansas. We did focus-group interviews with Kansas lottery players, who overwhelmingly told us that they liked the idea. We traveled the state talking to civic leaders and finance and credit union leaders – a credit union seemed to make sense as the institution to hold the deposits – and lottery managers.
In consultation with GTECH, the gaming technology company already working with the Kansas lottery, we developed the idea of the "Kansas Saves" smart card – a combination debit card usable for purchases, savings account card to transfer money into your savings account at the point of ticket purchase, and loyalty card to keep a record of ticket purchases and account balances. We were excited! We thought everything was ready to go.
At the last minute, Brownback killed the idea. He never told us why. Instead, he went in exactly the opposite direction, implementing a plan that he'd inherited from his predecessor, Kathleen Sebelius, to build state-operated casinos in Kansas – yet another opportunity to encourage Kansans to lose their money rather than save it.
Brownback missed his chance, but one day this idea will become a reality. As public policy, lotteries are a dishonest farce. And the idea of using the lottery infrastructure to help steadily losing bettors become steadily winning savers is too good to ignore forever, even in our age of political dysfunction and hyperpartisanship.
Evidence that such a program would work is already in. My friends at the organization Doorways to Dreams, in their pioneering work with credit unions, have already shown that prize-linked savings programs can help people of limited means build assets over time and can win political support from both sides of the aisle. Where is the state governor out there who wants to do something good for the people?
This article originally appeared here.