Working Paper: NBER ID: w16433
Authors: Melissa Schettini Kearney; Peter Tufano; Jonathan Guryan; Erik Hurst
Abstract: For over three centuries and throughout the globe, people have enthusiastically bought savings products that incorporate lottery elements. In lieu of paying traditional interest to all investors proportional to their balances, these Prize Linked Savings (PLS) accounts distribute periodic sizeable payments to some investors using a lottery-like drawing where an investor's chances of winning are proportional to one's account balances. This paper describes these products, provides examples of their use, argues for their potential popularity in the United States --especially to low and moderate income non-savers--and discusses the laws and regulations in the United States that largely prohibit their issuance.
Keywords: Prize-Linked Savings; Savings Behavior; Lottery; Low-Income Households
JEL Codes: G21; G28; H30; K3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| PLS accounts (M41) | increase household savings rates (D14) |
| PLS accounts (M41) | motivate individuals to save (D14) |
| existing saving behaviors (D14) | influence outcomes (I24) |
| demographic factors (J11) | influence outcomes (I24) |
| lottery gambling (H27) | preference for uncertain payoffs (D81) |
| introduction of PLS accounts (G23) | increased likelihood of savings (D14) |