Peter Tufano at HBS has been doing research on savings based lotteries for a while.  The basic idea is that lots (generally poorer) people buy lottery tickets – the average American household spends $500 per year on lottery tickets – and it is a well known fact that we don’t save nearly enough.  While savings rates are supposedly up, it is mostly a reflection of credit utilization being down.  The Wall Street Journal recently picked up the idea, here.

A savings lottery would look and feel somewhat like a lottery ticket to its buyer, but in actuality would be a deposit into a special savings account.  Therefore the player actually keeps, instead of loses, the entirety of her entertainment expenditure. Prize money would be produced by aggregating the interest from all the deposits.  Every day or every month, there would be a drawing for prizes: $1000, $10,000, even $1 million.  Basically, every “ticket purchase” would be treated like a raffle.  The more you buy, the more chances you get.  The longer you keep them “in”, the more chances you have.  It’s an exciting idea that every behavioral economist worth his salt should just love, and which exists in several other countries – except for the fact that it’s illegal in most of the US.

CFSI made a grant to Professor Tufano’s non-profit, D2D Fund, which has a successful history of taking cool ideas, testing them and changing policy based on the results.  We have started a pilot in Michigan in partnership with a handful of credit unions: Save To Win.  The pilot launched in February and despite the small size of the credit unions’ footprints, the relatively small prizes, the results are quite impressive.  In the first six months, more than 10,000 accounts were opened and just over $5 million in deposits were made.  Pretty exciting.

This, of course, is just scratching the surface of opportunity!