Making Savers Winners: An Overview of Prize-Linked Savings Products
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.
The authors thank colleagues at the D2D Fund, Howell Jackson, Anna Lusardi, Olivia Mitchell and Mike Orszag for beneficial discussions and for their help in conducting the research on which this paper is based. The authors also thank Seth Freedman for his excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Kearney, Melissa S., Peter Tufano, Erik Hurst, and Jonathan Guryan. “Making Savings Fun: An Overview of Prize-Linked Savings,” in ed. Olivia Mitchell and Ammamaria Lusardi, Financial Literacy: Implications for Retirement Security and the Financial Marketplace, Oxford University Press, 2011.