The Greater Fool

Posts for Tag: economics

A decent proposal

Podcasts | 11.17.10 | By Stephen J. Dubner

Is America Ready for a “No-Lose Lottery”?

What if there was a way to win a big jackpot without having to risk losing anything at all? (Photo by JOEL SAGET/AFP/Getty Images)

Last year, Harvard Business School professor Peter Tufano helped conduct a survey that asked a simple question: if you had to, could you come up with $2,000 in 30 days? In the U.S., he found that nearly half of us couldn’t. This failure to save has real and, often, devastating consequences.

Let’s face it: saving money isn’t very sexy. It’s not the kind of thing you talk about at cocktail parties. Spending money, meanwhile, is a gas. And one thing that Americans love to spend money on is lottery tickets. Last year, sales topped $58 billion even though, as investments go (or even as gambling goes), the lottery offers a dreadful return.

So what if it were possible to combine the two — saving money and playing the lottery? In this podcast, Tufano and economist Melissa Kearney tell us about an innovative financial product that offers this very combination. It’s called a prized-linked savings (PLS) account. PLS accounts have been used all around the world, for many years — but, in the U.S., it is only just getting its first foothold, among a handful of Michigan credit unions in a program called Save to Win. You’ll hear Dave Adams, CEO of the Michigan Credit Union League, talk about its success.

Will PLS plans flourish across America?

Hard to say — mainly because they are, for the most part, illegal.

Why?

Because they are legally viewed as a lottery — which is forbidden by most state laws. Unless, of course, the lottery is run by the state itself. Which, in the U.S., is exactly how things work. (Nice monopoly if you can get it, right?!) It works that way in South Africa too, and you’ll hear about how the national lottery there handled things when a bank started a successful PLS plan. (Hint: there was a lawsuit involved.)

So as you’ll hear in this podcast, an innovative solution to the low-savings problem may never get a chance to fly because of existing laws that do an excellent job of protecting the interests of … our state lotteries.

Is America Ready for a “No-Lose Lottery”?

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Can this work in the states? Would I doubt it in our spend-first (and -second, -third, -thirteenth) economy. I'm not shocked but saddened to learn that half of the population could not come up with $2K in 30 days.