Saturday, August 30, 2014

Lottery savings accounts

"Lotteries are a tax on the stupid." We've heard this before but this simplistic statement ignores the entertainment value a poor person gets from dreaming about getting rich by purchasing a ticket. Being down and out is a tough situation and the thought that a $1 ticket can bring you riches is worth the purchase price.

My statistics professor once told me: 'The odds of winning the lottery are tiny, but by buying one ticket, you have improved those odds infinitely from zero to this number. Buying two tickets only doubles these odds so stick with one ticket." I use that philosophy when the mega millions gets above a quarter billion.

But I'm not poor and I already save about 20% of my income. How can we encourage the poor to save while still giving them the hope a lottery provides? A long time ago I dreamed of machines located next to the lottery machines at the convenience stores that people could load their money into a retirement account and see the balance and predicted amount at retirement every time they used the machine. Then they would have a choice between instant gratification and long term savings.

But I like a system even better as reported on in today's NY Times article. Here several credit unions offer 'Prize-linked savings accounts.' A small percentage of the interest rate is dedicated to monthly prizes which are randomly given to people who deposit money into their accounts that month. Not only do you have published winners, everyone else wins because they all save money for their futures.

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