Will people save if you make it fun?
Our National Press Foundation group heard a lot today about the problems that low-income people have in saving for retirement — or, really, in saving at all. Wilhelmina Leigh, a senior research associate at the Joint Center for Political and Economic Studies, talked about the many barriers — social, economic, cultural and behavioral — to saving, the biggest one being a lack of disposable income. And then we heard from Preeti Mehta, special projects director at the Boston-based Doorways to Dreams Fund, about some interesting attempts to overcome those obstacles.
One experiment, called Save to Win, attempts to get people excited about saving by making it more like the lottery. She cited a survey in which 38 percent of people earning less than $25,000 a year said that winning the lottery was their best chance of accumulating sizeable savings. That, plus the fact that 80% of U.S. gambling revenue comes from households earning less than $50,000 a year, made a lottery-like savings plan seem worth trying.
In the experiment, eight credit unions in Michigan teamed up to offer a $100,000 grand prize, plus smaller prizes in monthly drawings. For each $25 that a saver puts into an account, he or she gets one chance to win. You can get up to 10 chances. The accounts pay a little less than the market rate of interest, making the prizes possible.
The project launched in January, and the credit unions have gathered $1.8 million in savings so far. According to Mehta, 29 percent of users reported that their family savings was less than $2,000. Forty-three percent said their household income was less than $40,000. And 62 percent said they had spent money on gambling in the past six months.
So, the results are encouraging, but Mehta admitted that it will take a bigger, randomized study to see if lottery players can be turned into savers. Plus, the legal challenges in setting up these accounts are formidable — while Michigan law permits them, she said, other states may not.
Of course, cash-strapped states may not look kindly on competition for their lucrative lotteries. But, as Doorway to Dreams says on its site,
If even a small fraction of the $90 billion Americans lose in gambling each year could be diverted to saving, prize-linked products could have a significant impact on the amount Americans save each year.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
This is an interesting idea, and thanks for pointing out that it’s no free lunch because people who invest in it receive lower interest.
One feature that I think is good from a social standpoint — and which state lotteries should copy — is limiting the size of the individual prizes and thereby having more prizes. Allowing jackpots to go into the multiple millions may attract more foolish players to lotteries, but is absolutely horrible social and economic policy. From just the economic standpoint, it places way too much control over capital to people who are generally not qualified to either spend it or invest it intelligently.
being a disabled vet, I have to worry about what I spend because I have no savings because of no income to save. I have never bought a lottery ticket and will not save just so some state might, I say might give me money because I save it. Until we get a living income, this is a joke that I will never participate in. If you can live on less than 7000 a year, more power to you. I subteach because I can’t get a teaching job here in Southern Illinois. I have a ton of education and no job market. We are here taking care of my wifes elderly family. We can’t move and won’t move because even if we wanted to, to where. I have applied for jobs left and right and have not even gotten the rejection notice. Overqualified is as bad as not qualified enough. Give us the jobs, then we will save more but without them, fat chance we will ever save. I didn’t want it this way but it happened. We served this country so let us work for it when we return. Fat chance that will happen.