Could a Lottery Be the Answer to America’s Poor Savings Rate?

DESCRIPTION Kirit Prajapadi (center) at World Books/Carlton Cards in Penn Station, the No. 1 lottery outlet in New York State, selling more than $8 million in tickets per year.
Freakonomics Radio

Is America Ready for a “No Lose Lottery?”: A lottery-linked savings account might do wonders for our sad savings rate.

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The Gates Foundation has just pledged $500 million to a cause that seems quite different from typical problems like disease, famine or illiteracy. That $500 million is going to help poor people learn to save money.

“We think really that poverty stops where savings starts,” Chris De Noose of the World Savings Bank Institute told the L.A. Times.

The new Freakonomics Radio podcast (download/subscribe at iTunes, get the RSS feed or listen live via the link in box at right) explores an idea that the Gates Foundation may want to look into: Prize-Linked Savings (PLS). In a nutshell, PLS is a kind of savings account that pools some of the interest from all depositors and pays out a big lottery prize every month or so. It combines the thrill of the lottery with the safety of a savings account. It’s sometimes called a “no-lose lottery,” since a depositor is automatically entered into the lottery but can’t lose the original money she deposits.

And while PLS might play well in the poorest parts of Africa and Asia, there’s a group of researchers who feel that PLS is very badly needed right here in the U.S.

Peter Tufano is a Harvard Business School professor who specializes in consumer finance. He recently helped conduct a survey in several countries, including the U.S., which asked people if they could come up with $2,000 in 30 days if they had to. It turns out that nearly half of Americans couldn’t – “which means,” Tufano says in the podcast, “that they stand only one emergency or crisis away from really quite dire circumstances. This isn’t picked up in the national economic statistics.”

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)

The facts are simple. Americans have a low savings rate; and Americans love to play the lottery. Last year, we spent more than $58 billion on lottery tickets, or roughly $200 per person. As entertainment goes, the lottery is pretty cheap – a dollar and a dream and all that. But as an investment, it offers a dreadful return. States typically withhold about 40 percent of the ticket money from the prize pool for overhead costs and, often, education funds. That’s a far worse return than casino gambling or horse race betting. Which is why the lottery is sometimes called “a tax on stupid people.”

That’s why people like Tufano and University of Maryland economist Melissa Kearney are interested in bringing PLS plans to the U.S. (Here’s their paper on the topic, well worth a read.) PLS accounts have been successful in other parts of the world for years. In the podcast, you’ll hear from Tufano and Kearney, as well as from the folks who started a successful PLS program in South Africa – and the folks who got that program shut down.

Why? Because the National Lotteries Board of South Africa sued the bank that offered the PLS. It turns out that the biggest obstacle to offering a lottery payout with a savings account is … the state-run lottery.

And that may be the biggest barrier to making PLS happen in the U.S.: it is, for the most part and in most states, illegal.

DESCRIPTIONDave Trumpie of Trumpie Photography Billie June Smith, the first big winner in Michigan’s “Save to Win” program.

There is, however, one exception already – in Michigan, where the “Save to Win” program has been offered among several credit unions, and recently paid out its first $100,000 prize (to an 87-year-old woman who had deposited $75). You’ll hear about the Michigan program in the podcast as well.

Melissa Kearney sums up the argument best:

“So we know Americans like gambling. They always have, the majority of them do it, and they’re going to keep doing it. And so what we do is take seriously the idea that people want some small chance of winning a large sum of money. That market, that asset is missing from the American landscape. Low-wealth individuals, the only asset available to them that gives them some chance of accumulating a large amount of money is the state lottery. In fact, a recent national survey of a thousand adults, one in five American adults said their greatest chance of accumulating hundreds of thousands of dollars is through the lottery. That number jumps to forty percent for folks making less than twenty-five thousand dollars a year. So a lot of Americans think the lottery is their only chance at winning big sums of money, why don’t we take that appetite for gambling, for a product like this and attach it to a savings vehicle that offers some positive return? It’s a win-win situation.”

Except, of course, for state lotteries.

Audio Transcript

Stephen J. DUBNER: There’s something Peter Tufano wants to know about you: If you had to, could you come up with $2,000 in 30 days? That’s the question he asked a whole bunch of people in 13 countries, including the U.S.

Peter TUFANO: Why $2,000? Cause an auto transmission is about $1,500.                 Most estimates of what everyday emergencies are about are in that order of                magnitude, if you were to have a sick or ailing relative on the other side of the country and you had to buy a full price plane tickets, it could easily be that amount. And then why this language “come up with” as opposed to “save”? Because we wanted to see if people had access to resources between savings and credit, and friends and family. About half of Americans are not able to come up with $2,000 in 30 days, which means that they stand only one emergency or crisis away from really quite dire circumstances. This isn’t picked up in the national economic statistics; this is picked up at a much more local level, at a much more intimate level of what happens inside families. It’s this lack of savings as it were that motivates me.

DUBNER: Tufano is all about the motivation. He’s a professor at Harvard Business School; one of his specialties is consumer finance. He wants to know how many checks you write, and for what; how much you borrow, and why. And what you spend on beer, on toys -- or on lottery tickets.


ANNOUNCER: From American Public Media and WNYC, this is Freakonomics Radio. Today, America’s sad savings rate may have met its match. If you like the lottery, we’ve got a bank account for you. Here’s your host, Stephen Dubner.



DUBNER: Americans are generally terrible at saving money. Think about what Peter Tufano just said -- half our country doesn’t have enough money in the bank to survive one breakdown.  And it’s not just poor people. In Tufano’s survey, only 25 percent of the people who earn between $100,000 and $150,000 a year could come up with that $2,000 in 30 days.

We are, however, excellent at spending money. Houses, cars, clothes, books, electronics -- and lottery tickets. Households that play the lottery spend on average about $1,000 a year on tickets -- that’s more than a typical household spends in grocery stores on dairy products and beer combined. This year, Americans will buy about $60 billion worth of lottery tickets.

The other day, I went to a store in Penn Station in New York called Carlton Cards. It’s pretty big. In the back are rack upon rack of greeting cards and some candy bins. But there weren’t any customers back there. All the customers were jammed up front, at the lottery counters. According to the New York State Lottery, Carlton Cards sells more lottery tickets than any other store in New York. Kirit Prajapadi is one of the managers. I asked how much lottery revenue his store does in a year.

Kirit PRAJAPADI: It’s about $8 to $9 million a year.

DUBNER: Holy crap! $8 to $9 million a year in lottery sales in one store in Penn Station.


DUBNER: OK, you see people buying tickets all day. You see winners a lot. Tell me how excited they are when they win.

PRAJAPADI: When they win, they forget about all their losses.  And they get excited, like they win something.  Whatever they lose, they just care about their win.

DUBNER: They give you a hug?  Give you a kiss?

PRAJAPADI: Not really. Just handshake probably sometimes.

DUBNER: You probably don’t want the hug or the kiss.

PRAJAPADI: No, not really.

Melissa KEARNEY: When I was in graduate school there was a local little store by my graduate student-housing unit, and I would stop there on the way home and pick up milk and orange juice, and notice lots of people buying lottery tickets.

DUBNER: This is Melissa Kearny. She teaches economics at the University of Maryland.

KEARNEY: So I just sort of started chatting with the vendor, and he said “Oh I have people coming in and spending hundreds and thousands of dollars on lottery tickets a month, a year.”  And so being a graduate student I just downloaded some data and started playing around, and was struck, regular people do spend a lot of money buying lottery tickets. So it was just sort of a passing curiosity really. I started wondering about what were they not buying in order to buy lottery tickets.

DUBNER: So let’s walk through some of the numbers in lottery gambling. In the U.S., how many people play the lottery?

KEARNEY: Half of U.S. adults surveyed said they played the lottery in the past year.

DUBNER: And would that make it the most popular form of gambling in the U.S.?

KEARNEY: Yes, by far.  So two out of three American adults report gambling, and 50 percent say they’ve played lottery, and the next closest is casino, which is about one in five adults.

DUBNER: Why do so many people play the lottery? Because it’s fun! For a dollar or two, you buy the chance to dream. Big. This remarkable bargain illustrates a phenomenon -- a probabilistic oddity -- that economists call “skewness.”

KEARNEY: That’s the idea that there’s some big prize way out there that corresponds to very small odds, but there’s some potential of capturing that.  And that’s what your typical money market account can’t give you. So you could have $1,500 in your money market account, and every month you might earn a dollar on it.  But there’s no chance in any month that you’ll earn $100,000 or even $10,000.

DUBNER: Now, I know as an economist you’re not trained to answer this question, but as a human being, tell me, why is skewness so important to us?

KEARNEY: That’s the chance of changing your life, right? That’s the return, that’s the big-win outcome that might allow you to buy a beach house, or, you know, to send your kids to college. If it’s less far out in the distribution that might be what you need to make a down payment on a house, or buy a car, or throw your daughter the wedding you want to throw her.

DUBNER: For a lot of people, skewness has an irresistible appeal. And so, a handful of researchers like Melissa Kearney are trying to harness its power -- the unlikely chance of changing your life with a big prize -- to solve America’s low savings rate. The idea is a new financial product that combines the thrill of the lottery with the goal of, say, accumulating more than $2,000 in a savings account. So that a broken transmission doesn’t become a full-blown crisis. Here’s Kearney’s pitch.

KEARNEY: So we know Americans like gambling.  They always have, the majority of them do it, and they’re going to keep doing it. And so what we do is take seriously the idea that people want some small chance of winning a large sum of money. That market, that asset is missing from the American landscape. Low-wealth individuals, the only asset available to them that gives them some chance of accumulating a large amount of money, is the state lottery. And in fact, a recent national survey of a thousand adults, one in five American adults said their greatest chance of accumulating hundreds of thousands of dollars is through the lottery. That number jumps to 40 percent for folks making less than $25,000 a year.  So a lot of Americans think the lottery is their only chance at winning big sums of money -- why don’t we take that appetite for gambling, for a product like this and attach it to a savings vehicle that offers some positive return? It’s a win-win situation.

DUBNER: That win-win situation, and the chance to make it happen in the U.S., has generated a lot of enthusiasm among economists like Kearney and Peter Tufano, the Harvard Business School professor we heard from earlier. He’s the man who’s been researching what are called “prize-linked savings,” or PLS, all over the world.

TUFANO: I started in the UK because they have a product called “premium bonds” which has been around for about 50 years, a little bit more. And where the government offers a savings product to investors which, at first glance, would almost look perverse: give us your money, and we promise you no interest. But that’s not quite how the program works because it’s give us your money, you can take your money out at any time, and each month we’re going to basically take the interest pool and we’re going to lottery it off so that one lucky person will become a millionaire and literally every month someone in Britain gets a knock on their door from Mr. Million who tells them they’ve won the million pound prize. There are over 100,000 other people in the UK who have found out they’ve won smaller prizes.

This was an intriguing concept and so the research that I’ve done tried to understand: Well was this more like gambling or savings? Bottom line: it’s both. Then this travel took me to South Africa where I met Robert Keip, and he was creating a product call MAMA, the Million a Month account, and I think in a word or in a phrase he described the entire economics and in some sense the value proposition for savers quite simply: Everything to gain, nothing to lose. It’s a savings account where you can take your money out when you’d like. You always have access to your principal and it will never go down in value, you may come out with a little bit of interest, a little bit of payment, but you might come out with a remarkably large payment. But you can only go up and you can never go down. And then, in respect to the extensive work on behavioral economics and behavioral finance, the logic of this product is quite obvious. People have what we call loss aversion, they much prefer to protect against losses than to worry about gains, they tend to misestimate small probabilities, but when you put it all together, in very plain English, people would rather have a small chance at a life-changing payout, than an almost certainty of a pittance.

So I can be guaranteed in this interest-rate environment to put my money away and maybe be able to buy a coffee with the amount of interest that comes off my $100 account. Whereas, I’m willing to say I’ll give up that interest but there’s some possibility, remote as it might be, that I might be able to have a life-changing payout -- an amount that would allow me to buy a car, or a house, or even more. So this preference for highly skewed payoffs or, you know, the kind of payoffs that are usually present in gambling or lottery products when combined with savings turned out to be tremendously effective around the world, but it was completely absent for legal reasons in the United States.

DUBNER: So, what are those “legal reasons?” As Tufano discovered, state law typically prohibits something like a Prize-Linked Savings account because it’s a lottery and, according to state laws, the only legal lottery is a lottery that is run by the state itself. Nice monopoly if you can get it, right?! You can hardly blame them for keeping lotteries to themselves. They generate billions in revenues. And so, while most states might like to help their citizens save more money, they may not be willing to pit their own lotteries against ones that might be run by, say, a bank.


DUBNER: Peter Tufano’s research into prize-linked savings programs around the world convinced him that the idea could help Americans, particularly low-income Americans, increase their frighteningly low savings rate. The lottery aspect made it illegal in most states -- but, in Michigan, there was a loophole. Last year, Tufano got a group of credit unions to pilot the idea. Here’s Dave Adams, CEO of the Michigan Credit Union League.

ADAMS: You know banking can actually be pretty boring.  It’s not like we go to social events and talk about how much we’re saving and talk about a great new feature on our checking account.  Banking services are pretty mundane. So what people want and need is a fun way to save, and in Michigan we’ve come up with what with what we think will accomplish that. It’s a program called Save to Win.

And what it is, is using a lottery concept, so if someone saves, so that for every $25 that someone puts in to these one-year certificates of deposit, they are going to get a chance at cash prizes.  And the cash prizes are given out every month by participating credit unions ranging from $50 to $500. And there’s a grand prize at the end of the year, an opportunity to win a $100,000 grand prize. So Save to Win gives people what they need, which is they need to save more, while giving them what they want, which is a fun way to do it: a game of chance that makes it interesting to save.

DUBNER: Something that you will want to talk about at a party, say “Hey, I won a hundred grand!” So you’re making savings sexy by introducing a lottery element.

ADAMS: I think so, I don’t know so far as to say that it’s sexy, but it’s certainly far better than talking about the point-five percent that I’m getting on my savings account at the bank. So now you’re getting a competitive interest rate.  You’re doing what you know you need to do, which is be more responsible in the way that you save and plan for the future. But you’re getting a chance at these cash prizes including a chance at a $100,000 cash prize.  And the odds of winning are much better than what you would see if you were buying lotto tickets.

DUBNER: Even with a sputtering economy and low interest rates, a handful of credit unions in Michigan opened 15,000 new savings accounts. Save to Win surveyed some of these customers. More than 60 percent of them had spent money on the lottery or gambling in the previous six months. Fifty-five percent had had no savings plan.  Save to Win was beating its goals, and reaching the customers it was supposed to reach. It makes you wonder what would happen if a program like this took over an entire country.

Robert KEIP: Well, my name is Robert Keip. I worked at First National Bank for 11 years, where I headed up the Investment Product House, which was a business unit that really focused on retail deposits, both consumer and corporate deposits. And our focus was trying to look at ways of growing the funding base of the bank.

DUBNER: First National Bank, or FNB, is in South Africa. In 2005, it started what would turn out to be a phenomenally successful prize-linked savings program. It was born out of South Africa’s financial problems, as the country struggled to put the apartheid era behind it. Millions and millions of black South Africans did not use banks, for anything. Robert Keip wanted to find a way to get some of them in the door.

KEIP: Now in South Africa, because so much of the population is unbanked, so much of the savings are literally sitting under mattresses. Now, this has got a double effect: the one that really does really do badly is that it removes that funding from the mainstream banking environment so it can’t be harnessed to lend out and fund economic growth because retail funding tends to come from consumers and then get lent out to businesses who can then create jobs. That was the one problem. The second problem was really that these people with the money without bank accounts were really excluded from the banking system and by being excluded by the banking system you miss out on so many benefits that really help with people’s individual development. For example, developing credit records, not being exposed to money being stolen or lost on the way home.

DUBNER: But Keip’s bank had a problem. Interest rates at the time weren’t keeping up with inflation, so putting your money in a plain old savings account might actually erode its value. Keip’s job was to make it worthwhile for customers to deposit new money. So instead of simply offering an account with a scrawny interest rate, he’d offer an account with practically no interest at all -- but: it came with the chance for a really big payday.

KEIP: So what we did, we literally pooled all of these little point-two-five percents of interest. And then what we did is we paid out that interest in lump sums to a few people. So we paid out 150 people a month in lump sum prizes. So the first prize would be a million rand, which is an enormous amount of money in South Africa. And then there were three prizes of $100,000 rand. And then we went down to 20,000 rand, and a few prizes of a $1,000 rand. So really what we did is collected the little bits of interest that would be paid on all these little accounts and then paid it out randomly to a few select lucky winners.

DUBNER: So let’s say I live in South Africa. I take the money I’m earning and put it under my mattress or maybe buy some high-risk equities. You’re offering me the security of a bank account and the excitement of a chance to win a million rand. And what did you call this idea?

KEIP: We called it the “Million a Month Account.”


KEIP: And MAMA became the trivial name for it.

DUBNER: And you’re the man who gave birth to MAMA.

KEIP: Yes.

DUBNER: And how successful was MAMA?

KEIP: Hugely. Probably too successful for its own good.

DUBNER: MAMA attracted more than a million new customers to Keip’s bank. Other banks in South Africa took note -- and they complained to regulators. And then the Keip’s bank heard from someone else: the South African National Lottery.

KEIP: Well, we engaged with them before we launched. We wrote to them and asked them opinion on the product. They wrote us a letter back saying that they didn’t think it was a lottery; they thought it fell into a promotional competition part of the legislation -- and that we just comply with the requirements of promotional competition. And we launched and nothing was heard from them for six or so months, then they contacted us to say actually they don’t like what we’re doing -- that it’s a lottery now.

DUBNER: So when you were starting out and there was very little money in your coffers, they thought that it wasn’t a lottery. But then after it got going for a while, and you had, how much? A couple hundred million dollars?

KEIP: About $200 million. By the time we closed down. But more importantly it was over a million customers that we had brought in.

DUBNER: And the National Lotteries Board changed its mind then. It thought: “Oh, that thing that we said a little while ago was not a lottery, now looks a lot like a lottery.”

KEIP: Yes.

DUBNER: What did they do then?

KEIP: We first engaged with them and tried to discuss it but it was very clear that they were in no position and not wanting to even try to discuss what the issues were. And so they took us to court to have us closed down.

DUBNER: Hugh Melamdowitz is the man who took MAMA to court. He’s the lawyer who represented the South African National Lottery. Melamdowitz argued that First National Bank’s MAMA program infringed upon the state lottery’s right to be the only game in town. The case went all the way up to South Africa’s Supreme Court of Appeals, and Melamdowitz won every time.

DUBNER: Hugh, you must be very good.

Hugh MELAMDOWITZ: I can’t answer that.

DUBNER: Now, when MAMA was created, about 70 percent of low-income South Africans were said to be “unbanked.”  The government was eager to cut this number. MAMA made it easy to get people in the bank. All they had to do was deposit a minimum of 100 rand, or about $15, into a 32-day “call” account -- what we’d call a certificate of deposit. So, what’s wrong with that?

MELAMDOWITZ: Well I suppose it is an inducement to bank, but for the period in which your money is deposited in the bank you do not receive any interest.  South Africa has a relatively high interest rate. Part of the motivation around the account was touted as being a no-cost account, which was correct, but also there was no interest earned. In South Africa on a 32-day call account your interest rate is fairly substantial. So for the days when your money wasn’t earning any interest whilst it was sitting in the bank accounts and the bank was earning substantial sums. I think the idea was that it was driven towards the unbanked hence the minimum amount of 100 rand.  But realistically, substantial amounts were being deposited into accounts with the chance of affecting the million rand return.

DUBNER: Now, how successful was the savings plan run by FNB in actually drawing in money from either the previously unbanked or citizens at large.  How much did they take in, in what period of time?

MELAMDOWITZ: Well there was substantial taken in, not necessarily from the unbanked. My understanding is that substantial funds came from their regular customers. And really the customers who had sufficient means that they had essentially free money sitting around that they could afford to put aside for the 32 days without effecting any return, or any real return.  So my understanding is that the funds were deposited not predominantly by the unbanked, but really predominantly by the banked, and I would imagine predominantly by the more wealthy customers. The return that the bank made was fairly substantial.

DUBNER: Melamdowitz’s argument seems a bit at odds with itself. He says the bank took advantage of people by failing to give them a high interest rate -- but also that most people who bought into MAMA weren’t the unbanked, that they were wealthier customers who had, as he puts it, “free money sitting around.” Well, if they want to play the bank’s lottery instead of the national lottery, why shouldn’t they be free to choose?

But Melamdowitz was doing his job: protecting the interests of his client, the National Lottery. And it worked. MAMA was shut down.

Robert Keip, the man who created MAMA at First National Bank, stands by its success. He says the excitement of the lottery payout got people in the door so fast that the cost of acquiring a new bank customer fell from $300 to $5.  But that was MAMA’s goal in the first place -- to expand banking. Keip says 20 percent of MAMA accounts were opened by people who were previously unbanked.  Sure, it wasn’t the majority, but MAMA reached that level in just the first three years. And it took $200 million in deposits. Last year, after MAMA was shut down by the national lottery, Robert Keip was invited to Washington D.C. to talk to federal banking officials about the program’s success.

ANNOUNCER: On the next Freakonomics Radio, we take the idea of prize-linked savings to the lottery officials of America. They don’t like it so much. And one of the first no-lose lottery winners in America describes how winning and saving feels. That’s next time on Freakonomics Radio. Whoever thought stories about savings accounts could be so exciting?

Freakonomics Radio is a coproduction of WNYC, American Public Media and Dubner Productions. You can find more audio at And, as always, if you want to read more about the hidden side of everything, go to the blog at


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  1. Drill-Baby-Drill Drill Team says:

    Hidden due to low comment rating. Click here to see.

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  2. Leo Piccioli says:

    I think it is a great idea.
    Let me add that, during hyperinflationary times, in Argentina people used lottery (“quiniela”) to save their money’s value against the constant price increases.
    They simply bet every week the minimum amount (which grew with inflation) and periodically won (this is a low payout – high probability lottery) an “indexed” price.
    Yes, 30% of that went to the state. But for many it was much more efficient than a savings account. And extremely more fun!

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  3. Larry Lard says:

    So is this the same as the UK’s (state-run, effectively) Premium Bonds? The capital is guaranteed safe by the state, the prizes give an average interest rate of 2.5% tax free, but the prize structure means most people get less than that.

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  4. Jesse says:

    This isnt going to happen in the US we have too much stock in taxing poor people without them realizing it while giving tax breaks to the upper quartile. If stupid people dont pay for public services who will?

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    • Dan says:

      Tax Breaks to the upper quartile? Give me a break, would you get off the class warfare rhetoric?

      The statistics are all available, the upper earners pay the majority of taxes. Plain and simple, and don’t bother to pull out that useless “Warren Buffet pays a lower rate than his secretary” BS.

      Hot debate. What do you think? Thumb up 14 Thumb down 13
      • Charlie says:

        Obviously, the upper brackets of the wealth distribution pay a larger share of the taxes, but is it a proportional share? Absolutely not. If you account for 25% of the nation’s income, then you should account for 25% of the nation’s income tax revenues. Unfortunately, this is not how it works out under our current tax system. The top 1% and and top 0.01% pay an incredibly disproportionately low share of their income (once factoring in non-wage income) in taxes.

        Our tax system is anything but fair. It places a disproportionate tax burden on the middle and lower sections of the wealth distribution.

        For example, sales tax is a tax that (unintentionally) targets the poor. Because low and middle class individuals spend a larger portion of their incomes on consumption (out of necessity), they pay a larger share of their income to taxes. If I spend 100% of my income on consumption and the sales tax rate is 10%, then 10% of my income is spent on taxes. On the contrary, if i spend 50% of my income on consumption with a tax rate 10%, then only 5% of my income is spent on taxes.

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  5. James says:

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  6. Clancy says:

    Another good argument for the abolition of state lotteries.

    It seems to me that the proliferation of state lotteries (which are probably one of the worst ways for a state to fill budget gaps) is an unintended consequence of the conservative lust for lower taxes. It has gotten to the point where even the mere suggestion that taxes might sometimes need to be raised (or even loopholes closed) means a swift end to your career as a politician. So, when faced with a buget deficit, state lawmakers can either cut popular/necessary spending programs or find some sneaky way to bring in revenue that won’t be called “increasing taxes” in thier opponent’s attack ads.

    If you really need to raise taxes, just raise them. Lotteries and other scams are just as much, if not more of a drag on the economy as any income tax, sales tax or excise tax and holds back those who can least afford it.

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    • Brian says:

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  7. SHG says:

    This is a win for the banks, instead of paying 0.5% interest on saving now and 2% in good times rates will stay low because savers will be looking for the big win not better rates.

    Individual savers may win, but collectively they are losers and the banks will win.

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  8. Justin James says:

    One thing to keep in mind, is that lottery is dirt cheap. Yes, it offers worse yield than a casino or a racetrack. How many people live near a track or have OTB available? And even if you did live near a track, what about the gas to drive there, the time spent being there, etc? Likewise, last time I was in Atlantic City, minimum bet on a hand of blackjack (your best bet to win money in a casino) was a whopping $25. Lottery tickets are $1 each.

    I used to think that lottery was a “tax on stupid people” too. Now, I like to think of it as a high yield, high risk junk bond. By buying lottery tickets, I am investing in my government and have a chance of striking it rich too. For most Americans, not only is it the only way they’ll ever get rich, but it’s the only one they can afford even if there were other options.

    Playing Powerball or MegaMillions with the multiplier costs $4 a week for one draw. Honestly, how much is someone going to save up at $4 per week? What mutual fund, IRA, or other financial product would accept an investor putting in $4 a week without murdering them on fees?


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    • Derek Kerton says:

      J.Ja: What you say is true, $4 a week doesn’t add up to much. But you’ve missed the point of the discussion.

      The idea is not to convert somebody’s $4/wk into a savings vehicle, it is to create a savings vehicle that ‘satisfied the demand for gambling’. People have indicated they want to have the feeling of ‘having a shot at making big money’, and a PLS could give them that…and not confiscate their principle.

      Of course, people would be encouraged to put in more money than $4/wk. If people can scrape together more, they can build up some real savings. Naturally, some can scrape together more, some can’t. But even then, at least you would have $208 dollars at the end of they year. You and I might scoff at $208, but for the person who can barely scrape together $4/wk, $208 is a lot of money. It’s all relative.

      Remember the article’s original question, “How many Americans can scrape together $2,000?” This is seen as an essential buffer to pay the rent and heat in case of a layoff, or to pay for a broken arm in case little J.J. falls off the stairs.

      Therefore, you should not ask if PLS will create the next Rockefeller, but rather if PLS will
      1) satisfy the desire to gamble, take risk, and ‘have a shot at making it big’
      2) increase the number of people who have some kind of savings buffer.

      Derek Kerton

      Well-loved. Like or Dislike: Thumb up 20 Thumb down 1
  9. Peggy Sapphire says:

    If getting rich is the American Dream, then “the only people who believe that are asleep” – George Carlin.

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  10. Greg says:

    I am one that can come up with $2,000 in 30 days. I play the lottery. I play when the prize get up to 30 million or more. I don’t really miss the money. I know it is terrible odds, but it is the only game in town where if I win I can retire.

    I say if people are too dumb to build up an emergency fund then the heck with them.

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  11. SHG says:

    The problem is if the economy stumbles all the people without a emergency fund loose there homes, creating a housing crash.

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  12. Eric M. Jones says:

    Gates plan is genius.

    I can certainly afford to play the lotto, but I discovered many years ago that the real cost is the squandered time when I am dreaming about how I might spend the money that I surely not win. This seems evil to me, or at least preposterously stupid and likely to cause an accident, especially to the person in front of me at the mini-mart who is doing his “financial planning” while my ice cream is melting.

    I figure that chance they will sent the Powerball winnings to me by accident are the same as winning them. Exactly the same, zero to six decimal places….

    BYW: 58 Billion? That is small change compared to the 850 Billion (and more) we sent to Wall Street.

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  13. Matt says:

    I have a hard time believing one statistic from the podcast:

    Peter Tufano says that about half of Americans can come up with $2000 with 30 days notice. At the same time, only 25% of those making $100K-$150K could come up with that sum.

    So does this mean that the poor have significantly greater access to liquidity than the rich? Or perhaps Tufano’s sample size was too small, and the rich ones he surveyed are disproportionately loaded down with huge mortgages?

    Something doesn’t add up. Anyone have any insights?

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  14. jdiec says:

    A better question should be why other countries don’t need to resort to institutionalized bribery to get their populations to be more responsible with their finances.

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  15. Sandy says:

    I have a revolutionary way to increase savings, and it would influence savers at all income levels:

    PAY A REASONABLE RATE OF INTEREST. The pittances that are given now are insultingly low. The only way to do worse is to stuff your money in a mattress – and at that, the mattress won’t eat you alive with fees.

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  16. Charlie L says:

    Maybe a lottery could be the answer to the budget deficit too.

    In addition to the Presidential Campaign check off box, why not have a $5 box (or more?) to enter an “American Dream” lottery where the Treasury would make some fixed number of Americans millionaires? I bet this would increase tax compliance and make money for the government….

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  17. Dan says:


    Lower-income folks tend to have all or the vast majority of their net wealth in cash. The wealthier you are, the more likely you are to have a complex portfolio including real assets that are harder to convert into cash.

    Also, it actually makes sense to me that 100-150K earners would be in the toughest cash position. That’s the range where you are paying a good chunk of your income in taxes, and you probably have kids and/or a mortgage and/or multiple car payments. You may also still have a decent load of student loans. If you and your kids are older you’ll find you don’t qualify for financial aid at a lot of colleges, but you can’t actually afford to pay full tuition. You’re also probably in a social sphere that has a strong “Keep up with the Joneses” mentality – meaning you constantly feel peer pressure that makes you live beyond your means. All of which make the debt pile up, your ability to get reasonably-priced short-term loans diminishes, and your checking account feels more and more like a direct wire to your creditors.

    Just some thoughts,

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  18. bill says:

    Well, maybe, but its still a tax on stupid people, because with states keeping 40% of the take, people would presumably still be better off putting the money into a regular savings account. On the other hand, people seem to relish paying the stupidity tax, so letting them pay it is fine with me.

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  19. akira says:

    On the surface this is great…sounds like a win-win situation so to speak. :-) But what is sad is that once again, it seems like the only incentive that might be able to get SOME people to understand the importance of saving, is to include with that the possiblity of their ‘hitting the lottery’?

    What about just teaching people some common sense…of showing them the hard numbers of how much they spend on average per year on the lottery….and if they were to take that same money and invest it, how that might ammortize over time? And reminding them of the miniscule chanve they have of hitting it big, and how often times ‘hitting it big’ doesn’t imprpve your life, but can actually creater newer, bigger problems.

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  20. moonwell23 says:

    In “Faust”, Goethe wrote of monkeys playing Lotto. The centuries have not taught us much.

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  21. Jimmy Cracks Corn says:

    The Rich will never go along with it….

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  22. Concerned Citizen says:

    Some years ago, I was chatting with an acquaintance about the lottery prize at that time, which had gotten up to the $20-25 million mark, and he said, “If you ask people what their plans are for the future, for retirement, you often get a shrug or they are leaving it to chance, or just refusing to think about it.”

    “But if you ask them how they would spend a huge lottery win, you find they have given it HOURS AND HOURS of thought, often having very detailed and specific plans for what they would do with the money — how they’d spend it, on what, what items they would buy, how much they’d give to charity or their kids, etc.”

    “So basically — for RETIREMENT, which almost everyone will have, they have given it no thought.”

    “For THE LOTTERY, which only 1 in several million will ever win (and most of those, they will not win the super-large prizes), they have spent time to develop really elaborate, detailed plans.”

    DOES THAT MAKE SENSE? Of course not. But that is also human nature. Planning for poverty or a diminished lifestyle in retirement is no fun, so we put off doing it. And saving? denying ourself stuff NOW so we have something in 40 years? VERY NOT FUN.

    But planning to spend millions on luxuries? Showing off to our friends? Now — THAT IS SERIOUSLY FUN.

    And this is why we have the systems in place for retirement we have (SSI, for example), because most people simply cannot handle planning for the future.

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  23. Alex in Chicago says:

    Matt: That is the perfect tax bracket for “House rich” people.

    High mortgages, car payments, etc. They probably don’t play the lottery, just overextend themselves for “prestige”

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  24. Jennifer says:

    This down economy has increased the savings rate for those who are working. Those who are unemployed or sub-employed have no margin for putting anything into a savings account and, if they did, they would have to pay exorbitant fees if the account held under $100.

    But savings is not where most people put their money. because it doesn’t make any money sitting in a savings account. When you refer to the savings rate, are you including investments in stocks and bonds?

    These “lottery” games or tricks are slightly sickening. I think the lottery itself is an absolute travesty. Neither promotes well-being or good planning. And I agree with #7, it smells like a win for the banks. Kind of like the great “success” with micro investing and now those borrowers are defaulting and facing relatively huge penalties. If the banks can’t get their fees one way, they’ll figure out another.

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  25. Mike says:

    James — Krugman’s advocating that the government spend money. I highly doubt he’d have any problems with encouraging savings among poorer Americans (though I have no idea how he’d feel about this particular proposal).

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  26. steve says:

    If you look at the math, this is not a win .- win situation. Depositors give up interest income they would normally keep in hopes of a big payoff by chance. Money is fungible, but people tend to put different dollars in specific buckets and think about it differently. If you earn interest and lose it, they think that is different from giving the principle away. Say you gave away $1 in earned interest after taxes; that is actually not different from keeping that dollar and giving away $1 in cash out of your pocket. The motive is good, encourage people to save. However, the process inflames greed, which if you have spent any time in a casino, tends to develop the opposite of savings. I suspect poor people don’t bother to save because they make so little that it is too discouraging for them. The problem would be better dealt with from that angle.


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  27. Bob in Berkeley says:

    Perhaps the reason U.S. savings are low has to do with getting an effective interest rate of ZERO; combined with even minimal inflation and various bank fees, the average joe is better off buying a necessity today than paying more for that same item tomorrow.

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  28. Pierce Randall says:

    This is so stupid.

    First, the poor would have to forgo spending on basic needs to save, since the nature of being poor is to have more needs than you can meet with your current income. Yeah, a lot of poor or seemingly-poor people use the lottery. But it doesn’t follow that poor people make up the most lottery players (the middle class does), or that most poor people have gambling addictions. And anyway, if someone pays the lottery instead of the electric bill, the right answer isn’t to get them to instead deposit that money into an account so that they might win the lottery (although this is still better than them buying a ticket). The right answer is that they pay the electric bill.

    Second, savings rates are improving quickly in America. You know what’s causing it? Fear. Americans haven’t felt scared in decades, but since the recession, the risk of losing one’s job has translated into higher savings.

    But this is a risky venture. We really want people to do a little better at saving overall, but we’re still a consumption economy. That means that, for prices to stave off deflation, we’re tied to credit and borrowing for the future. Without this, there would be less consumer demand, and less growth–probably not enough growth to create the jobs needed to keep up with natural population increase. Baseline savings should increase in the US, but it would be in the public good for that to happen two or three years from now, when unemployment is below 7 or 8 percent.

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  29. Ron Bannon says:

    Here’s what’s wrong with this plan:
    1. Wealth Without Work.
    2. Pleasure Without Conscience.
    3. Knowledge Without Character.
    4. Commerce (Business) Without Morality (Ethics).
    5. Science Without Humanity.
    6. Religion Without Sacrifice.
    7. Politics Without Principle.

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  30. Peter Baisley says:

    Funny, yesterday I thought that a lottery / health insurance could work. You’d get a card you’d show everytime you bought a ticket, and at the end of the month your insurance would be prorated to how much you spent on the lottery.

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  31. Ben says:

    i always liked the idea of a personal tax where 10% of all spending gets added to the withdrawal from checking and moved over to savings account. A $10 debit becomes $11 with $1 moved into savings. Privatize taxation?

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  32. JenofNJ says:

    I don’t get it. I keep hearing during this recession that Americans are being too cautious and putting too much of their money into savings because they feel uncertain about the future. Now there’s a plan to increase the rate of savings?

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  33. dweb says:

    If a lottery is a tax on “stupid people,” then what do you call a savings account?

    I have one. My bank requires that I keep a minimum balance of $300 in it. in order to have a checking account.
    I have had the savings account for 5 years. The grand total of the interest I have earned on the account in the last two years?,,,,,,.04

    That is cents by the way. It makes great “cents” for the bank because they have thousands of people who collectively effecitively give them hundreds of thousands of dollars to lend at virtually no cost.

    And you wonder why savings rates are low?

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  34. Wayne Steffen says:

    As addicted to plastic as the middle class is, I hope Gates can spare some training for us.

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  35. George Ballentine says:

    Why not encourage state to switch to prize linked savings lotteries? If it truly helps get folks out of poverty, there are potential long term cost benefit for the states.

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  36. Ben Lowsen says:

    As I understand it, “state” lotteries such as California’s are merely state-sanctioned, not run. That task is fiefed out to contracting companies that reap massive profits while leaving only a pittance for the state. This is little more than a wealth-redistribution plan from poor to rich and should be abolished.

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  37. David Cook says:

    How about the reverse idea: Income tax as lottery? Every pays a dollar more in taxes, and some small fraction of filers win a large cache prize. You can only win if you file, and winners are audited!

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  38. mml says:

    matt, my guess is that those with the 100-150k are stuck in keeping up with the jones’ mode. by the time you add up a mcmansion mortgage, several suvs, maid service, and private school for the kids there’s not much left over to save. people with less money are, in some cases, smarter with their money and willing to spend less extravagantly. just a hunch.

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  39. Robert Fabbricatore says:

    Why would anybody save when the rates are pathetic and the meager return is taxed at the ordinary rate. Meanwhile, Bill Gates and the other top 400 earners pay a 15% capital gain rate on their dividends and stock sales and pay little or no corporation tax. It’s a rigged game. Thirty years ago, you could get 5-6% in savings and even 4% with an online savings account just a few years ago. But if the banks can get money at the Fed discount window at 0% to go back into the Big Casino, they don’t need to compete with attracive rates for customers to get deposits.

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  40. catlady says:

    13: Matt:

    Making $100K-$150K doesn’t mean an expense free existance. Car payments, mortgages, school and real estate tax, and overall insurance takes HUGE chunks out of a middle class income (and I assure you, $100K is middle class these days)

    If we count social security as insurance, add in unemployment insurance contributions, homeowners, medical insurance, dental plan and prescription plans, as well as car insurance, most people’s largest annual expense is insurance, not taxes.

    Between taxes, insurance and daily expenses, sometimes it’s pretty hard to come up with cash.

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  41. Ron says:

    For Matt #13. Really? $100k-$150k rich? In many communities on the Coasts that would be a middling income and in trying to have it all, you would be burdened by mortgages and car payments, etc. Not to mention if you have kids and all the costs that involves. Not surprised by that number at all.

    I have thought for some time that the lotteries could be improved greatly if the prizes were smaller and spread out over a lot a people. We have heard over and over about these huge payouts destroying peoples lives. Instead of one person getting 10 million why not 20 people getting a half million. Or even more people getting a $100k. It would make the lotteries more equitable and the money would be put back in the economy quickly. Or it could pay off a families’ mortgage. Seems it could be easily tried for popularity by offering several different types of lottery with different payoff amounts. And may the best lottery win.

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  42. PJ says:

    State lottery systems were supposed to help pay for education, until governments confiscated the funds for other purposes. Hope this one works better.

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  43. Betsy says:

    I don’t see why it’s illegal – is it because they are calling it a lottery? Can’t they just call it a sweepstakes or something?

    If Gates wants to spend his money on this, I guess that’s his business. But are they really going to learn anything? When the program ends, will they keep saving? Also, is EVERYONE who has a savings account going to be eligible? It seems unfair to penalize those of us who already choose to save.

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  44. Jeff says:

    If the goal is to raise the official “savings rate” statistic, it’s much easier to just count current and past money spent buying lottery tickets as “savings”

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  45. Robert says:

    If the goal is to raise the official “savings rate” statistic, it’s far easier to just count money spent buying lottery tickets as “savings” because, isn’t that exactly what PLS is, for the interest earned ?

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  46. Mr.Q says:

    Great idea!

    I worked at a convenience store in a relatively poor area of New York State for a year while in university. Many many people came in to play the NYS lotto. These people did not really seem stupid to me. For the most part they seemed addicted to something (gambling, drugs, alcohol), or just depressed about life in general because of their poverty and the lack of optimistic options for their future. I thought of it as a combination of poor lifestyle choices plus being a “victim of the system.”

    I see this program as providing a system that will give them an opportunity to be optimistic and then possibly make different lifestyle choices.

    I don’t see how the states could deem it illegal. It has a bit of gambling in it, but it seems less akin to gambling and more like It’s a sales gimmick; a way for the bank to generate customers. . Perhaps like a radio station that gives the tickets to the 99th caller, or the contests that require you to send in five proofs of purchase to enter the drawing, or a store that awards the one-thousandth customer of the day with a free item

    The main way to screw it up would be to make it illegal (ie. the government’s (greedy) monopolistic power over the lotteries punishes the citizens) or for the government itself to administer the program. It seems like an obvious free market idea. I’d like to see it happen.

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  47. B.R. says:

    It would be interesting to see if this concept would work if applied to public health. For example, getting your cholesterol checked, diabetes screening, or a multitude of other that, like health checks that, like saving, ‘we know we should do it,’ but don’t seem to have the self-discipline at a community level. I’m not sure how it could self-finance like this mechanism, however, perhaps insurance companies could sponsor it among their constituents so they’d be insuring a healthier population and profit?

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  48. Misha says:

    So, let me see if I understand this: instead of having people learn to save realistically, we pander to their impulses to gamble and save people from their own bad behavior; instead of having people stop smoking, we come up with better ways to treat lung cancer so they can smoke all they want; instead of having people learn more in school, we simply lower the standards for graduation and give trophies for simply showing up. This isn’t a race to the bottom, it’s a free fall.

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  49. Vanine says:

    How can somebody save anything if everything is going to survival? The savings are so abysmal, because people are not earning enough to pay for LIFE. Hello! Stop the gimmicks. PAY MORE FOR WORK INSTEAD OF FINANCIAL MONOPOLY AND PEOPLE WILL HAVE WHAT TO SAVE.

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  50. George Mifflin says:

    ‘The facts are simple.”


    The low US savings rate does not by and large reflect cultural factors, the intellectually lazy and condescending viewpoint that many intellectuals and pseudo-intellectuals embrace.

    Instead, it largely reflects America’s disastrous trade policies, and the “forced dis-saving” that results from foreign central banks’ purchases of US assets.

    The logic is as follows, and is based on the following accounting identity:

    Savings – Investment = Exports – Imports

    When imports rise, workers lose their jobs. Unless they kill themselves immediately, they are forced to borrow or run down their savings while they are alive. The declining real wages of the last three decades have contributed to falling savings rates. In contrast, in countries experiencing rapid industrial growth, wages have risen and workers are in a position to increase their savings rates.

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  51. The Poet McTeagle says:

    How about a decent rate of return on a FDIC insured savings account?

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  52. heymish says:

    I put all my money in Czarist war bonds.

    You never know.

    I got a niche.

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  53. Ricky Greenwald says:

    It’s fine to say that people shouldn’t need this, but that doesn’t solve any problems.

    I think it’s a good business idea for a bank anyway. Might get a lot more people depositing money, at virtually no interest.

    And if it’s working in other countries to help some people get out of poverty, why not try it here?

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  54. elaine says:

    I have never played the lottery in my life, but I would totally put money into that.

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  55. Jim Frank says:

    “We think really that poverty stops where savings starts,” Chris De Noose of the World Savings Bank Institute told the L.A. Times. That’s crap. Savings start when poverty ends. Poverty starts when people get paid fairly. The super rich in the USA now receive 23 % of the income up from 9% in 1970 when the US savings rate was over 10%. Give everyone a raise, they will have plenty of money to save, and consume.

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  56. Dylan says:

    Like many others have said, this is a GREAT thing for the already wealthy banks. This is nothing more than a marketing ploy. Americans should fight for higher returns not a fraction of a percent chance that they might have a return.

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  57. Jim says:

    The reality of the situation is that a household with income of 13,000 dollars spends over 1000 dollars- about 9 percent of their income- on lottery tickets. Is this a good idea? No, of course not. Does it stop it from being true? Nope.

    Helping people put even a few hundred dollars away to address a future liquidity crisis can help them avoid turning to the payday and car title lenders (1000+% APR)that can put people that were on the brink of financial collapse over the edge.

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  58. Krish says:

    All the greedy paws on the state lottery will stop this idea on its tracks, and some programs (like education) will see steep de-funding.

    The greedy and the stupid have a comfortable and cozy relationship right now. Why is a third party complaining about the status quo?

    Even if it is a great program in theory, the money grubbing capital industry and their proxies, the republicans, will make sure this idea doesn’t go anywhere. There is no natural constituency worth talking about for this idea. A bunch of poor losers, and some socialist well wishers! We know how far that will go and how much that constituency is worth!

    Just look at what happened to the micro lending industry. There was an article on NY Times just very recently about how the charlatans (hedge funds no less) are siphoning off humongous sums of money from that market with IPO’s etc. Money doesn’t grow on trees. It needs to come from somewhere. Now that much less is available for productive enterprise — lending and borrowing — in that sector. Of course it is showing up in India first, as India was drummed up as the best market for micro lending based on culture, opportunity, and need.

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  59. Steve Fakemidclas says:

    this is impressively stupid!!
    Americans not save enough is not because they don’t KNOW how to save, rather they have no extra fund to save after basic expense, such as housing, insurance, utilities and food etc.
    I have a friend live in new york city more than 40 years, published 2 or 3 books nobody reads, he NEVER has enough fund to buy a house or a condo. He never has enough fund to marry, and to raise children. He never own a car.
    Because he never has STABLE income to support a mortgage, a family or a car loan payment.
    HE is very poor, pure and simple. yet he always try to pretend to be middle class! what a laughingstock!

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  60. Juan says:

    Is there a reasonable way to discourage the super wealthy from hogging a disproportionate share of the probability of winning? Maybe a progressive cap on pay-out?

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  61. RW says:

    Why can’t liberals get their propaganda straight? They’ve been telling us all along that our problem is the hoarding of cash: companies won’t spend, consumers won’t spend, so the government has to spend itself into bankruptcy in order to compensate.

    Come one liberals, at least come up with a coherent narrative (go back to college and read Marx or something).

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  62. Keith says:

    The real root of this problem doesn’t lie in people and the issue of “incentivization” to save money, but capitalism itself. The presence of the credit market and a profoundly materialistic society has tripled consumer debt over the past thirty years. And our “solution” is to turn savings into a lottery? I fear we’ve reached a profoundly sick point when we are incapable of contemplating our own social and moral failure. This is simply late-stage capitalism running its course.

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  63. Cal French says:

    Sorry. Taxes need to be raised on me and others in my income bracket–I make more than 3/4 of all Americans– by both the US and California. And I will be willing to pay them without complaint, as long as they are paid by others. I’m not going to send in contributions that will be lost in the maze. Sadly, all too many people with more than enough money to satisfy their minimal daily needs think that they owe nothing much to their countrymen and that they can survive on their own.

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  64. mopar says:

    It’s very easy for people making twice the cost of living to save and think everyone else should too. Not so easy to do when your income is so low it doesn’t cover basic rent, food, and utilities.

    But if you could put $200 a year toward this lottery savings account — great. What’s the return in 40 years? Maybe $16,000? Not going to cover retirement. So, unless they win the lottery, they will have to rely on social security and maybe an SRO.

    I don’t play the lotto myself, but it doesn’t seem all that irrational if your income is very low.

    Even better than a lottery savings account would be a higher income! Maybe the CEOs could learn to put off gratification a bit and save 60 percent of their very high income, we could pool it, and use the interest to pay higher wages.

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  65. In or Auss says:

    how about we dismantle SS and let people save privately? That way when idiots do dumb things like not save up for their own retirement, the rest of the hardworking people (that do pay taxes) don’t have to have that extra burden on their backs?

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  66. Regine says:

    Isn’t this the way countries with Sharia law get people to save by way of banks? Interest may be haram, but an opportunity to win one of many small prizes is not.

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  67. John Stevens says:

    Ye, looking at the US, Europe and UK deposit rates at, it is no wonder we have to invent gimmicks to get people to save. The reason the savings rates are so low is that we are bailing out mortgage owners, companies and banks while retirees and savers have to have ridiculous savings rates. The natural deposit rate should be significantly higher and the quicker we get there, the quicker poor retirees can take all their money out of Wall Streets casino stock market.

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  68. Richard Foard says:

    Finally! Lotteries have been called a tax on stupidity. Correctly. The expected value of a $1 ticket is about $0.50 in most lotteries. We can exploit the same stupidity to do some good for people, by making the expected value of a ticket larger than the face price. Condescending? I suppose, but it could compel people who are too witless to save money to, well, save money. Sad. True.

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  69. Shane says:

    We have this system in Ireland already: Prize Bonds. Savers put some money into the account and a lottery sends out regular prizes. The more money invested, the higher the chance of winning. In Ireland it is state-guaranteed, so it’s seen as a safe way of saving.

    It has been going on since 1957 and seems to be perfectly uncontroversial.

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  70. James says:

    Re #39: “Why would anybody save when the rates are pathetic and the meager return is taxed at the ordinary rate…”

    What else would I do with the money? I make more than I need to cover my living expenses (as do the people who play the lottery, obviously), so at the end of most months I’ve something left over after all the bills are paid. Should I then, a la Krugman, go out and spend the money on some piece of consumer junk that I don’t actually want? (And in many cases, actively want not to have, if you understand the distinction.)

    As for those lower capital gains tax rates and such, surely you’re aware that you too can get the benefit of those, simply by directing your savings to e.g. a mutual fund.

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  71. Joao says:

    A similar product has been offered by Brazilian banks for years. They call it “capitalization plan” or “capitalization title”, to give the idea that the clients are actually acummulating capital, and they have been very popular (and probably profitable) with low to middle income consumers. Basically they guarantee some low interest (e.g., equivalent to a savings account) and give prizes such as houses, cars or sometimes just cash. In exchange, the client has to deposit a minimum amount every month (sometimes as low as R$ 30/ US$17). Given the low saving rates in Brazil, however, I am not sure these products were able to move the needle…

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  72. Tyler says:

    Jesse – What about the additional taxes rich people have to pay to subsidize the healthcare, benefits, and services of the poor people who can’t pay because they spent it all on the lottery?

    Justin James – Many minimum wage workers spend $5 a day on the lottery. $5 a day for 10 years invested at 8% is $27,000. Even at only 2% it’s $20,000. That’s a year’s salary or more for many workers. It adds up.

    Sandy – You understand that bank account interest rates are determined by supply/demand for short term assets, right? If the bank can only yield 0.50% on money market securities with your money, who is supposed to cover the shortfall to provide you with a “REASONABLE” rate of interest?

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  73. Ben says:

    So let me get this straight . . .we are going to try to encourage people to save with a lottery while simultaneously punishing savers by keeping interest rates low so that those savers can fund the spenders that we ‘need’ to get the economy going? Well look on the bright side! You can now tax money that was previously untaxable through short term capital gains on all the winners to fund all this stimulus.

    Also, with savings accounts yielding roughly zero its going to be hard to make much to fund this lottery on the spread between zero and roughly zero.

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  74. Julien says:

    Mike #25
    Krugman is recommending lower interest rate and printing new money, both of which work against savers and savings.

    Anyways I have to recognize the ingenuity of the Save-to-Win scheme proposed in the article. I am curious to see if it works. Savings and investment are the key to developing the economy.
    I just wish that existing policy disincentives to savings and investments be removed in addition to such innovative services.

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  75. BenefitJack says:

    We already have a process in place to improve savings in America … where 95+% of Americans who are approached save for the future.

    Simply, it just has to become a priority for the individual, their employer and our society (government) – such that the employer responds to the opportunity, and our society does not change existing incentives.

    Getting people to save in America, including the low paid, done! Now, we need to find ways to make it a reality for all Americans. Just as important, we need to ensure that these savings initiatives also help Americans avoid wasting their hard won savings …

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  76. Anonumous says:

    I agree with the writer who said that to encourage saving, banks should pay reasonable interest. They sure charge enough for loans! Given bank fees, you’d literally be better off buying a fireproof safe to keep your money in. Putting money in a bank has gotten to be like putting electricity in a battery. You never get out what you put in. Like bank fees, the chemical reaction isn’t perfect so you lose watt-hours.

    For way too many people, a 401K is basically a severance package. There is no way in the universe to save enough to retire on it. Unless you are making top dollar at age 18 until retirement at 10 percent of the wages AND you don’t get it nuked every 10 years due to Wall Street – engineered downturns, it does not work. I discovered that 15 years ago with a PC using QBASIC. Want to retire? Hit the lotto. Or buy a gun with one round of ammo so when you run out of money to pop yourself with.

    I vote for the “savings lottery” idea.

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  77. Kyle Smyth says:

    This reminds me of another article I read in the NYT a while back that looked at proposals to “reincentivize work”. What struck me then, and strikes me now, is the monumental disconnect between the people looking to solve the problem and the people living the problem.

    If someone does not see the value in work or saving, and we want to change that, why are we not starting by asking them what they would need to change their behavior? Granted any one individuals testimony would only be their opinion, a limited and subjective piece of a much larger whole, but it seems a more logical place to start.

    So perhaps here would be a good place to ask everyone here, if you don’t save, why not, and what would entice you to save?

    To answer the question for myself, I am very poor and unemployed (and seemingly unemployable). As a consequence I am a full time student (3.71 GPA, affordable community college on track to get a 4 year and then JD at an affordable state school), and all my assets amount to what cash I have from my most recent loan disbursement.

    I know dozens of people, like myself in many ways, hardworking, sober and prudent, who are putting off families, homes and all the other productive activities we hope to see in 30-soming year olds while they wait for an opportunity to get an entry level job.

    In my limited and subjective understanding of this issue, if you think savings rates are a major problem facing our nation you may be missing the forest for the trees. For these of us who are not saving enough I would think most are not lacking a healthy and reasonable terror of poverty, but lack the tools and opportunity to do anything about it.

    If we as a nation have decided that money is needed to secure access to food, water, and shelter, then we as a society have to offer all people a reasonable means to acquire money. We do not live in a time or place where we are lacking the means to see everyone fed clothed and cared for, and we should start acting like it. Savings lotteries don’t address in a full or meaningful way the problems of America’s poor, and so, I would argue, will fail to improve their savings rate.

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  78. Demin Martin says:

    In “Faust”, Goethe wrote of monkeys playing Lotto. The centuries have not taught us much.
    Best Savings Account

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  79. Wynn says:

    I’m trying to get several of my employees to contribute to the 401K program we have and they keep saying they’d rather buy a lotto ticket daily than put 1% of their income in a 401K program!

    I was looking to see what $260 a year — the equivalent of a $1 ticket 5 days a week in a mid level risk diversified mutual funds account would accumulate in 10 to 20 years. It would be comparable to the minimal amount I’m talking about.

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  80. Alex McLane says:

    I have trouble getting fully on board with this idea. A major question about this program that I have is that bankers are soulless and heartless and would probably rig the sweepstakes so that a candidate who’s more prone to save (or keep the money in the bank) would win.

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  81. Owen Miller says:

    This is a brilliant idea! For those who are avid savers, there is an added incentive with no real cost to them. For those who have found it rather difficult in the past to save because of financial constraints, they now have a strong motivation to try harder than ever to make a go of it. The banks benefit as they have more funds at their disposal. This is a win win.
    Now I certainly understand the resistance that the state lottery would present and to this they have a right as they have something to lose. Yes they have to right to find this prospect not to their liking but they should by no means have the say or the power to determine its outcome. Yes, some folks would perhaps not be as consistent in their playing of the state lottery. But many still would. The fact is this should be an option that should be made available to all citizens of all states. They could then decide if they would wish to avail themselves of one or both. This option should not be labeled as illegal simply because the state lottery out of no other reason but personal gain labeled it as such and by so doing removing it as an option. If indeed this option is to be considered and accepted as illegal, then how much more so should the state lottery be labeled illegal. No one would be losing funds with this option. Yet the vast majority of people lose in playing the state lottery and some quite significantly. Folks who feel strongly about this should bombard their state representatives with letters, emails and phone calls so that their voices can be heard respecting this matter. It is our right to choose.

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  82. AA says:

    I participate in the Save to Win program at my local credit union. It is basically a special 12-month CD that can be added to as often as you like, and each$25 deposit is a chance to win each month, and can be renewed or cashed out at the end of each 12 month period. The interest rate is double that of my regular savings account, though lower than a typical CD (however, a typical one also can’t be added to bit by bit and has a big minimum deposit, not the $25 required to open a Save to Win version, so much more accessible to more people). I think it’s an excellent program. (Not to mention I’m not paying the ridiculous fees my old bank charged since I switched to the credit union…)

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  83. James Douglas says:

    I would encourage people to look up the actual Tufano study as the numbers are much more nuanced and greatly sensationalized to serve this story. 25% of people actually are certain they cannot come up with the money. 50% only comes into play when including people that “probably” cannot come up with it or would have to pawn things or take payday loans. These facts are very important to include as most people CAN come up with $2000, they just do not realize it. However, It does not fit the narrative so these details were omitted. Here is the original study:

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  84. Alex.L says:

    Do anyone know what the music is which is used over the last minute of this podcast?

    Thanks :)

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