A Lottery That Encourages Savings And No One Loses? America Hates It

Prize-Linked Savings plans are these things where a tiny bit of the interest on all the participants’ savings accounts get pooled together. Then on a regular basis someone gets randomly selected for a giant cash prize! The instruments have done well in other countries for years, encouraging people to save instead of wasting their money on a hopeless game. Naturally, America hates it.

Who Could Say No to a “No-Lose Lottery”? [Freakonomics] (Thanks to Bernardo!)


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  1. EdK says:

    How did you derive “America Hates It” from that article and podcast?

    Fact is, it’s not legal most places in the US.

    • K-Bo says:

      American lawmakers hate it?

      • DanRydell says:

        How do you reach THAT conclusion? We have broad laws against gambling that weren’t intended to target this specific type of “lottery.”

        • Loias supports harsher punishments against corporations says:

          How about they are scared of it? Or apathetic to it?

        • K-Bo says:

          Wasn’t a conclusion, it was a tongue in cheek explanation for how the fact that it’s not legal could be construed to mean “America hates it”

        • pawnblue says:

          This is gambling. It’s just gambling that turns a vice into a virtue (if you think of saving as a virtue). Lotteries work because of greed. These lotteries require you to save if you want to act greedy.

          Anyway, America hates gambling. That’s why this lottery is outlawed in 49 states despite success over the rest of the world. We dump all our gambling into the desert in the middle of no where, and then we call it sin city. As a whole, it’s looked down on.

          Just like alcohol. Many people drink, but there are still all sorts of laws, including a couple of constitutional amendments regulating alcohol consumption.

          How can you conclude we don’t hate it?

          • kujospam says:

            But the stock market is gambling also.

            • AnthonyC says:

              Many of the wierd things wall street does are basically gambling, but stocks and bonds themselves most certainly are not. Stocks and bonds are generally profitable but volatile investments that actually provide a useful economic service.

            • SuperSnackTime says:

              opening a business is gambling, going on a date is gambling, etc etc etc…zzzzzzzzzzzzzz……..

          • mac-phisto says:

            “America hates gambling.”

            ROFL! are you kidding me?
            -43 states (plus PR, DC & VI – 46 jurisdictions altogether) allow for lotteries
            -40 states have casinos
            -32 states have horse tracks
            -vegas is consistently within the top 5 tourist destinations in the US

            truth is, america LOVES gambling, but the state HATES competition. ever look at the lotto provisions set forth by most states? they are designed specifically to allow a state-controlled monopoly of the business. it’s a racket. simple as that.

    • Harmodios says:

      Well, Ben (and the rest of the Consumerist), hate America.

  2. Loias supports harsher punishments against corporations says:

    The last paragraph of the article says:

    “As for the question about savings accounts, college degrees, and the death penalty — it has to do with hyperbolic discounting, though you’ll have to listen to the episode for this to make sense.”

    What is hilarious, is that the term hyperpolic discounting is a hyperlink to Wikipedia’s definition of the term. So no, I don’t have to listen to the episode.

  3. MercuryPDX says:

    It sounds like a Sou-Sou, except instead of getting a guaranteed turn it’s chosen at random.

  4. osiris73 says:

    First, I doubt that most people have ever even *heard* of it. I know I haven’t. So how could American’s hate it if they don’t know about it? Having heard about it, I would absolutely go for something like this.

    Second, that lone 8 on the picture is upside down and it bugs the hell outta me.

  5. AngryK9 says:

    It seems kind of silly to me. What is the highest intrest rate on a standard savings account these days, less than half of one percent?

  6. Delta1 says:

    Why would I want to pool the interest on my investments and give it away to someone else? For the miniscule chance that I can win some money? How is this different than spending my earned interest on lottery tickets?

    • evnmorlo says:

      A little better because the government isn’t keeping half of the money…but in the countries with these accounts you probably have to pay 25% VAT on everything.

      • Kate says:

        Did you really think this was done for free? No doubt whoever runs this program keeps at least as much as the government would.

    • mythago says:

      The odds are probably better. But it’s not aimed at you, anyway; it’s aimed at people who have a hard time saving and would do so with this incentive.

    • guroth says:

      I’m guessing that the amount they take from the interest is extremely small per customer.

      If you have 1 million customers, you only need 1 cent from each of them to have a $10,000 prize

      Even if this is done monthly, I’m not going to miss 12 cents a year. If I’m enrolled in this program for 50 years I’m not going to miss the $6

      No idea what the odds of winning would be, but for the price it seems like a good chance.

    • kmw2 says:

      It’s different from buying lottery tickets because at the end you still have your dollar, don’t you?

      • jesirose says:

        Notice he said “earned interest on a lottery ticket”.

        That is exactly what you’re doing.

        The point is, this will encourage people to save the initial dollar. Let’s say I have $1. I could buy a lottery ticket, and most likely loose. Or I could put that $1 in a bank account that includes a lottery ticket for free. Even if I loose, I kept my $1. The point is to encourage saving, which it does well.

  7. Bernardo says:

    I wonder if it would be cost effective and legal to save some of my money in one of these accounts someplace else in the world? If i didnt end up losing more than what I gained in taxes on this Id totally do it.

    • KaralynK says:

      I was thinking this when I heard the story on NPR. Apparently a loophole makes them legal for credit unions in Michigan. I live in Ohio – that’s just one state over…

  8. mythago says:

    What a silly article. State lottery boards don’t like it, therefore Americans hate it?

  9. Big Mama Pain says:

    Private clubs like the VFW and Moose Lodge have been doing this for years as a way to boost attendance. You get a ticket just for showing up and can buy as many as you want to put in the kitty; every day they draw a ticket, and if you are actually at the bar and the number is yours, you get whatever money was collected since the last person won. It can be $10 or $1000 just depending on how high the pool gets.

    • qualityleashdog says:

      Yeah, and bars that do that get busted for illegal gambling here in Indiana.

      And that isn’t the same thing, there’s no savings account at the bar, it’s just out-and-out gambling. Private clubs probably are allowed to get away with it somehow, but I know several bars that have chalkboards open to whoever walks in the door, and it’s as illegal as hell and they periodically get pinched for it.

      I think the real problem here in America is ‘split-the-pot’ raffles that high school clubs conduct at school sporting events. That’s the real danger.

      • Big Mama Pain says:

        The concept is exactly the same. The dollar amount for the PLS might be smaller, but it’s still a gamble that you’re getting a big pay off one day.

        This isn’t gambling, it’s exactly the same as buying a raffle ticket hoping for a prize (not arguing that it’s illegal, it’s highly illegal-just saying it’s stupid that it’s illegal!)

        • qualityleashdog says:

          In the Prize-Linked Savings Plan, you put up money and it earns interest. A portion of your interest is the wager, and creates the jackpot. Even if you lose, your original money is still there. You might not win, but you’re not going to lose anything you worked for.

          In the bar gambling, you put in your money, and if you lose, it’s gone. Someone might not win today and the money gets rolled over, but you’ll have to put in more money to have a chance the next time. The money vanishes. You have to continue feeding into the pot to have a chance. In the PLS, your interest is feeding it for you.

          The bars around here assign a customer a number. They may have a drawing every Tuesday (a slow day, so this drums up business). Pay your dollar for a chance, and if you’re at the drawing, you get the full pot. Paid, but not in attendance, you get half. Didn’t pay, you get nothing. Half payout or no payout, it all carries over for the next winner. The bar gets nothing except a large crowd hoping to win. The bar has no interest in the outcome of the jackpot, yet the state will shut them down or fine them for conducting such drawings. That’s totally unnecessary.

          Once you’ve bought your raffle ticket and lost, it’s gone. You get no credit for having played, you’re out unless you want to put up more money. You can lose in the PLS, but you’re still in the game without forking over more cash. Big difference.

          And I have no problem at all with gambling of any sort. I just wouldn’t want to see the return of establishments like we had in the old West where games were rigged and dealers were cheating customers. If it’s an honest game of chance, it’s a victimless crime.

  10. You Be Illin' says:

    The problem is that the states will lose out on a ton of lottery revenue that will need to be replaced by massive tax increases. The lottery is just a disguised tax on the poor and desperate.

    • pawnblue says:

      Not necessarily. Most people will still buy lottery tickets too. The key is to keep the prizes small. That way you can still tax the poor to your hearts content. They’ll just save a little bit too.

  11. dragonpancakes says:

    It’s not legal and “hated” by America because the gov doesn’t want any intelligent competition with the lottery.

  12. TheGreySpectre says:

    Can I just keep all my interest please?

  13. denros says:

    Well duh, because it involves large groups of people and money, it’s socialism and therefore completely meritless.

  14. Cicadymn says:

    If people learn to save then there won’t be any need for social security! Then how are democrats going to bribe old people with ONE TIME cash payoffs and continue to pay people who contributed nothing to it!

    Wont somebody think of the slush funds!

    • peebozi says:

      yea, no…dumbass. and i only call you a dumb ass because you’re a republican, it’s nothing personal, no offense.

  15. dolemite says:

    I’d be interested in this…I’d save anyhow…whats wrong with giving up a penny or 2 for adding a little excitement for saving?

  16. john says:

    Sounds like a progressive penny slot machine. Eventually someone wins the money that is collected, a penny at a time.

  17. PortlandBeavers says:

    There’s not enough interest being paid these days to generate much of a prize. If you gave away all the interest on a typical account these days, you could give one in 2400 people their balance every month. It would be pretty hard to win.

  18. MsAnthropy says:

    Hmmm, this sounds like National Savings Premium Bonds in the UK (which I will have to check in a second to see if they still exist)… I think just about everyone I know has some ancient and long-forgotten Premium Bonds certificates lying around in the attic. There’s a special number you can call to find out if you’ve won anything on the ones your great aunt bought for you 35 years ago… usually the answer seems to be “no”.

    Ah yes, they do still exist:


    Surprised to see that there’s a monthly jackpot of a million quid. I thought these things went out of fashion in my grandparents’ time, but evidently someone is still buying them…

  19. tooluser says:

    The expected value of your winnings is less than the amount they take away from you in interest that you would have earned if it were a regular savings account. They win, you lose, with statistical certainty. You may not lose as much as you would at a casino, but you still almost certainly lose.

    It’s that “almost” that suckers into the casino or lottery the foolish and those with little self control.

    But call it the cost of entertainment and I don’t see a problem. If I play the state lottery, for $1 I can dream for a few days about what I would do with the money if I won. How much is the entertainment cost of these “savings for suckers” plans? Is it fully disclosed to the purchaser? Is it a good deal compared to the entertainment cost of seeing a movie in a theater?

  20. bjcolby15 says:

    Whenever a lottery is mentioned on this website, I can count on filling in several slots on my bingo card – “The lottery is just a disguised tax on the poor and desperate” and “The lottery is a math tax” and “The lottery is a stupid tax.”

    The poor pay also pay all sorts of hidden taxes and fees that, if they actually calculated them, the taxes they fork over would be higher than the 35% income tax the rich pay. E.g. when a poor person forks over $5 for a pack of generic cigs, it’s often a 30-60% effective tax, depending on how desperate the state is (and how quick they want to siphon off the money from everyone – the poor will do it anyway because they’re a reliable vote and don’t/can’t fight back against politicians because they’re easily manipulated).

  21. gman863 says:

    Under current laws this would be illegal in the US.

    Under law, a contest becomes a lottery if it contains all three of the following: Prize, Chance and Consideration.

    This is why contests such as McDonold’s Monopoly have a “No Purchase Necessary” clause in the fine print. In the case of Monopoly, you could get a game piece by sending in a self addressed stamped envelope. The cost of postage or Internet access is not “consideration” since the sponsor does not profit from it.

    In this example, it costs about a buck (two stamps, two envelopes) to get one game piece; a large drink (sold for $1 at most Houston-area McDonalds’) had two game pieces.

    The only current way around this might be to allow redemption of “rewards points” earned on credit card purchases for entries in a drawing and offer a loophole that allows anybody to get one point (entry) by mailing in a request (no purchase or banking transaction required). Even then, it could be iffy depending on if the Courts consider rewards points as equal to cash based on their redemption value.

  22. Thorzdad says:

    Dear banks…Want to really, truly encourage savings? Pay more than 1 or 2% interest on simple savings accounts.

  23. jeblis says:

    So I lose my interest. How is this is anyway different from spending the dollar of interest on a lottery ticket?