Gambling to Save?

Oct 9th, 2014 | By | Category: Financial Smarts

Piggy-bank-with-poker-chips-600x449res72-forBlog

“What is the biggest obstacle to saving your money?

What technological and/or banking solutions might help you and your friends begin to save?”

The above question is what children who are entering in the Federal Reserve Bank of Chicago’s Money Smart Week’s 2015 Money Smart Kid (MS Kid™) contest need to answer. It’s a great question for all of us to ask ourselves, especially given that:

  • More than 25% of Americans have saved less than $1,000 for retirement.
  • Only 50% of Americans say that they could definitely find $2,000 if an emergency arose in the next month.

Now, I’m not going to give away the answer to these children entering the MS Kid contest, but one innovative way to save is to make it more fun with more potential reward, which is what hooks people into gambling. Yes, gambling as a way to save is a time-honored solution that’s now being heralded as a way to make savings more exciting, more interesting. Some programs of note include:

  • Since 1956, Britain’s Premium Bonds has offered no interest to its bondholders. This “Savings With a Thrill” program has 23 million people saving these bonds, which provides the government with £32B in bonds capital at a cheaper rate than borrowing. BTW, the British government has been using prizes to induce savings since 1694 when they used a jackpot to lure savers to give them their money so the government could pay off the country’s war debt.
  • In the U.S, a number of credit unions (but not banks, who are prohibited from running raffles or lotteries or evens sweepstakes if entering involves money) are now using lotteries to encourage families to save by offering prize-linked savings accounts that treat every deposit as a ticket in a prizewinning raffle, but with no chance of losing the deposit. “Even perennial losers keep their savings,” states Patricia Cohen in her 8/30/14 New York Times article, “Using Gambling to Entice Low-Income Families to Save.”

Lotteries have the worst odds of all legal gambling, according to Tina Rosenberg in her 1/15/14 New York Times opinion article, “Playing the Odds on Saving,” yet when:

  • Americans on average spend $100 more per household annually for lottery tickets than they spend on milk or beer
  • African-American spend 5 times as much on lottery tickets as whites
  • The very poor (less than $10,000/year) spend almost $600 annually on lottery—that’s about $20/year more than the average American…

…well, some feel that if what it takes to get people saving is to get them hooked on saving via a gambling instrument, perhaps it’s worth employing this tool here in the U.S. as it’s been used successfully for years in the U.K.

Others aren’t quite so sure if employing gambling to encourage savings is such a good idea. Tracy Frizzell, Executive Director of The Economic Awareness Council (EAC), points out that there are a lot of different ways to encourage saving by making it more fun and interesting. She encourages parents to start young by celebrating their children’s savings successes.

The EAC leads the Young Illinois Saves (YIS) initiative in partnership with the Consumer Federation of America and America Saves. Frizzell says that YIS currently has over 3,500 youths involved in meeting savings goals that add up to over $2 million saved—now that’s real money, not gambling chips, for your children’s piggy banks.

BTW, the MS Kid contest also offers some nice rewards to winners. Last year’s prizes included a $5,000 and two $2,500 scholarships plus a number of laptops. More information on Money Smart Week™ and MS Kid™ contest can be found at www.moneysmartweek.org.

Whichever way you choose to increase or start saving today, it’s definitely a better gamble than not saving at all.

Comments are closed.


       Past Blogs