The “No-Lose Lottery,” Part 2 (Ep. 13)

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Stephen Crowley/The New York Times You might think U.S Treasury officials would love a new kind of financial instrument that helps Americans save more. And you would be wrong.

“Who Could Say No to a ‘No-Lose Lottery’?”: Prize-Linked Savings plans work all over the world. But in the U.S., they have some powerful foes.

What do saving accounts, college degrees, and the death penalty have in common?

That’s the question we ask in our latest podcast, “Who Could Say No to a “No-Lose Lottery?'” (You can download/subscribe at iTunes, get the RSS feed, read the transcript, or listen live via the link in box at right.) It’s a followup to our previous episode, “Is America Ready for a No-Lose Lottery?” The answer to that latter question is: not quite.

The “no-lose lottery” we’re talking about is a Prize-Linked Savings (PLS) plan, a financial instrument that has flourished in many countries around the world for many years. A PLS is typically a bank savings account (though sometimes a government bond program) that pools some of the interest from all depositors and pays out big cash lottery prizes on a regular basis. It combines the thrill of the lottery with the safety of a savings account. The idea is to encourage people to save money rather than blow it on the lottery, where the expected payouts are typically very poor — but which, admittedly, is a lot more fun than simply putting money in a savings account.

You’ll hear from two economists, Peter Tufano and Melissa Kearney, who think PLS plans present a good solution to the U.S.’s sad savings rate. The PLS idea has finally taken root in the U.S., albeit in very small measures. One state, Michigan, now has a PLS program called “Save to Win” that has awarded its first $100,000 prize — to an 87-year-old woman who won it after depositing $75 in her credit-union savings account. You’ll hear from her too.


Dave Trumpie of Trumpie Photography Billie June Smith, the first grand-prize winner of Michigan’s “Save to Win” program

And you’ll also hear from some of the people who aren’t such big fans of PLS. State lottery directors, for instance. This isn’t very surprising. State lotteries are big moneymakers, turning a annual profit of $17.9 billion on $58.8 billion of ticket sales. So a lottery-linked savings plan could be seen as a natural rival. In South Africa, a massively successful bank-run PLS plan was shut down after being sued by the National Lotteries Board. In the podcast, you’ll hear from state lottery directors Gordon Medenica of New York (the biggest lottery in the country) and Leo DiBenigno of Florida.

We also talked to Michael S. Barr, who until a few days ago was the Assistant Secretary for Financial Institutions for the U.S. Treasury. (We interviewed him before his departure was announced.) He has done a lot of notable academic research about making financial services accessible to low- and moderate-income households. My first question to him in the podcast was whether he plays the lottery himself. No, Barr said. Why not?


Department of Treasury Michael S. Barr.









“It’s a fool’s errand. As you undoubtedly know, there are a handful of people who will make some money out of the lottery, but most people most of the time will lose money. It’s not a great way of spending one’s scarce resources.”

So you’d think someone like Barr would be a fan of PLS plans. But when I asked if, in his role at Treasury, he would support PLS plans in order to help people save more money, his lack of enthusiasm was palpable:

“One of things that I’ve learned in my role at Treasury is that picking fights that one doesn’t have to pick is not the wisest course of action unless it’s something that’s absolutely essential to take on. I wouldn’t have put that in the category of high priorities, to wage into a discussion of state gaming law.”

So the story of PLS isn’t just your average “you-can’t-fight-City-Hall” story. It’s more like an “even-City-Hall-can’t-fight-a-revenue-juggernaut-like-the-state-lotteries” story.

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.

ed g

One flaw, the same as in all schemes to keep the rich from paying anything and at most a slight portion of their fair share in taxes.

Let's have a real lottery that requires every person, corporation, and every profit or not-for-profit entity every quarter of the year put into a "Democracy Pot" 25% of all assets over $500,000,000.

Then let all Americans whose income is less than $250,000 and/or assests of $1,000,000 or less be eliglble for a random selection to win a portion of the Democracy Pot. The contributors would be listed according to their contribution level and given an award: the Award for Peace, Justice and The American Way.

This fair, ethical, democractic and non-discriminatory method of re-redistribution of the ill-gained, unethical, immoral, greedy and undemocratic hoarding of wealth would make a lottery a good thing.

Don't believe it? Wanna bet it is better change than what we have seen for the last fifty years. Well if you are not ready now, maybe next year!



I think this is a great idea. It promotes responsibility.


It all comes down to how much and where does it go.


I love the first comment: "For the full impact, I suggest dressing up Washington D.C. with a whole lot of neon, showgirls and low-cost buffets." Well, there are all those monuments and museums to show the folks back home their money has given them a great theme park! And the politicians seem to have a ready supply of show girls (though they seem to keep them hidden, maybe because the wives don't appreciate what they show about their husbands?) As for 'low -cost buffets', well, where else can you be taxed 10 bucks and get back $20 in tasty 'goodies'?


I understand why there is an interest in seizing funds to cover back taxes and child support; however, these public policies create cultural norms where people dont put money in banks.

- BD

Well, heaven forbid we should distress people who don't pay to support their children.

Eric Rasmussen

Bwahahaha. Link is lamenting the "breeders." I think he should visit Japan or Eastern Europe, where even modest family size fell from favor decades ago. Now it's hard to find a taxi driver under 70 and the population is apallingly gray. The work force is shrinking. Furthermore, Link is complaining about the transfers from the rich to the poor while ignoring the horrific, but subtle, tranfers from the poor to the rich by school systems that grossly underfund districts heavily populated by the working class and minorities. America's inequality is now sliding below that of many middle income countries. And folks like Link are happy with that.


While I can see merit in PLS system - they have a very popular one in the UK where you buy Premium Bonds - gov't bonds that pay out tax free prizes from ?25 to ?1 million each month - and means you don't lose the contributions and, in a way, could encourage some people who don't normally save to do so, there are 2 issues that go against the average Joe.

1) It doesn't say whether there is a limit that can be saved in the PLS in Michigan, in the UK the maximum any one person can put in is ?30,000. This is to prevent a very rich person getting richer as they could plonk in a very large amount and have much better odds.

2) Regardless as to whether there is a limit or not, the odds are very much against you that on average you will get any kind of decent return and it will be below inflation.
I think the UK interest (based on the prize award totals for a given month) is about 2%, although it is tax-free.

While you may not get a lot higher than that in a normal savings account you can do a fair bit better with other investments. Also, while you may win ?1 million, you could easily go even 18-24 months without winning any prizes.

It is popular, though, because people are enticed by the big prizes and also because of currently very low regular savings rates. At least if you put your money in PLSs you don't lose your contributions outright if you lose on your lottery ticket.



"As it is, a worker who dies before retirement loses all his SS benefits (unless he has an indolent spouse or minor children)."

Jimbino, I think you meant to write "indigent".

Chris Foreman

The PLS idea needs to be more fully explored. State lotteries are a state racket. I once bought a Maryland lottery ticket and got the One Dollar Fantasy (What if I win?!) but in truth its a con and I wish we would move low- and moderate-income people to other endeavors.


RE: "breeder" comment.

I'm a "breeder" and I don't consider this a slur at all.

It IS of interest that the government frequently picks groups for preferred treatment, whether they be married couples, minorities, home mortgage payers, earners of capital gains, or "breeders."

I'm not suggesting that this is wrong; I AM suggesting that it's tricky to pick ANY group as deserving of special treatment. We're about to see this first-hand as the debate over cutting the deficit heats up. "Sure we need to make painful cuts... but not MY favorite program, which is VITAL."

Harold Esven

Gambling is about loss, about the gamble. If people thought the money were simply being paid over to their savings account, the incentive to gamble would be lost, unless you could replicate the experience of paying cash for tickets, with that cash, somewhat deceptively, being payed into their account.

My neighbors who stand at the corner store counter and pay over large amounts of cash for shimmery lottery tickets derive some satisfaction from the idea of winning, but given the odds, they must derive a certain enjoyment from losing as well. This does not mean they are masochists or perverse, but I think a lot of pleasure has to do with loss in some way.

In order for this scheme to be effective, you would need to be able to preserve this experience of loss.


I'm still on the fence about the PLS concept. Personal savings is one of those theoretically important ideas, but so is "free will" and "luck of the draw." That is, its not intuitive that an increase in personal savings is worth jettisoning a vital source of public funding. So I'd ask: Would the cost to the public purse be offset by the financial health of the population, or would downgraded public services hurt the community at large? Assuming that interest rates remain low and lottery-seekers are by-and-large poor, I'm not sure I could say it would be.

I talked to my sis who is an anti-poverty activist, and she had a completely different reaction. She didn't like PLS because it holds itself out as a savings vehicle, yet offers a lower savings rate; for most poor, they would be better off with a better rate and less risk. So, in her mind, PLS becomes as much of a tax on the poor as does the current lottery system. She felt education and training in investment remains the only moral and reliable way to give people a habit of saving.

Of course, risk appetite is not based on reason but on desire. Many educated people still love gambling, and it isn't irrational to hunger for more risk. So I doubt that education will "solve" the regressive lottery system.

At the end of the day, the question is whether its better to have Joe's and Jimmy's lottery proceeds end up back with either Joe or Jimmy (minus administrative costs from the bank), or have them pumped into roads and public schools (minus administrative costs from the gov't). As a non-gambler, I'm biased towards the latter.



I have a question that is a little off-topic: is retirement savings (401ks, IRAs, etc) considered when the nation's savings rate is calculated? That would seem to be an incredible amount of money that is saved every month.


If the lottery benefits senior citizens like it does in PA, then, playing the lottery is like donating to charity. So, probably the poor people who play the lottery will eventually end up as it's recipients.

If PLS has much smaller prizes ($10,000 instead of $1,000,000) which are less frequently distributed than the lottery, then, there should be minimal conflict with the lottery, no?

Richard Hastings

"You must misunderstand Social Security. It's also there for survivor and disability insurance not just old-age benefits."

Unless your surviving spouse happens to be of the same sex.!!


I seem to remember one complaint that the economy sputters because we are not spending. If not spending, and not saving, are we also not earning?


#21 from ed g:

"This fair, ethical, democractic and non-discriminatory method of re-redistribution of the ill-gained, unethical, immoral, greedy and undemocratic hoarding of wealth would make a lottery a good thing."

Thank you, ed, for the powerful belly laugh created by the apparently sincere position that the seizure of private property from people who have earned it to hand out to those who hadn't earned is fair, ethical, etc. It sounded like the Clinton plan to proffer a "one-time" 25% tax on 401(k) account balances. Thank God this country isn't a democracy, else solutions like these would undoubtedly be adopted.


Jfree #36:
Those of us who are earning are neither spending nor saving. We're paying down debt!
And in the meantime, I'm trying to build up a savings cushion for a rainy day, which is earning me a fabulous 0.2 % rate of interest. That's 0 point 2 per cent, not 2 %. Pretty soon we'll have to pay the banks to hang on to our money. Is it any wonder Americans don't put money into savings?


This idea has fewer negative side effects as compared to regular lottery.

American capitalism is designed to extract wealth from all sources.

How proud the WWII generation must be with how we've made the world a catastrophe that sycophants prevent us from fixing.


To commenter #6:

It is true that blacks have higher infant mortality and this does contribute to a lower life expectancy than whites, but it explains only a small part of the difference.

See Table A (page 2) of the following link, which are 2006 life tables from the CDC:

Except at very old ages (>95), black men have lower life expectancy than white men. At age 20, the difference is five years. At age 30, the difference 4 years. That's a decent chunk of social security lost.