The New Way to Save Money: Playing the Lottery

Lotteries have often been called a tax on the poor and, alternately, a tax on the innumerate. There is something to both claims: Lottery tickets are disproportionately bought by lower-income people, and in aggregate the players win back only a small percentage of the money spent on tickets. Overall, lotteries suck money away from many people who can’t really afford it, and who should be socking that money away for more productive uses.

But some lottery players have found a way to get the thrill of gambling while also making the prudent choice to save a chunk of each paycheck. This is thanks to “prize-linked savings accounts”—each time an account-holder deposits a certain amount, they get a ticket for a raffle that includes cash prizes of various amounts. All of the money a participant spends on raffle tickets goes straight into their account, enticing them grow a nest egg and, perhaps more importantly, a habit of saving. “I didn’t have $500 to start a C.D., and when they said it was only $25, I knew I could do that,” said Cindi Campbell in an excellent New York Times article on the accounts. “I got addicted when I won $100, and I was thrilled to death.”

The prize-linked savings accounts are a new trend in the U.S. and are offered by a growing number of non-profits and credit unions. So far the arrangements are only legal in several states—they’re illegal in places where only the state is allowed to run a lottery—but the idea is spreading, and more state legislatures are drawing up laws to allow the accounts. There are also bills in Congress to legalize the accounts on a federal level. The bills have some bipartisan support, reflecting the fact that they appeal both to the liberal desire to help low-income people and the consevative preference for a government-free, market-based approach. A study from the conservative Heritage Foundation cites the accounts as a good way to “turn a behavior pattern into a savings habit that enhances the economic mobility of a household.”

Prize-linked savings accounts are to some extent tricking people based on their weakness for gambling, but if it’s nudging participants into saving their own money, there’s not much downside for them. (Whether there’s a downside for the states that are losing players from their lotteries is another question.) And besides, the lotteries that sell tickets to millions of people are already something of a trick. Players get the fantasy of winning a huge jackpot, their lives made perfect, telling their bosses to get lost, gloating at or sharing with their friends. All delivered through a paper card laced with a buzz of excitement.

Amos Zeeberg is Nautilus’ digital editor.