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December 06, 2021

Where's the downside to a prize-linked savings account?

“Who could say no to a ‘No-Lose Lottery’?”

That’s the title of a new, intriguing post on the New York Times’ Freakonomics blog. The premise: could a lottery system, based off of the interest earned from your savings account, be a responsible alternative to the traditional jackpots we seek?

Some economists think so. The proposed system works like so – prize-linked savings accounts, as they’re known, are opt-in accounts where the holders choose to enter their earned interest into a lottery-style draw.

1102982_swiss_coins_1 That interest, combined with the savings account interest of every other participant, would pool into a giant pot for payout, much like buying a lottery ticket. If you win, congratulations. If your account isn’t called upon, your interest is forfeited but you haven’t theoretically lost  any money.

“It combines the thrill of the lottery with the safety of a savings account,” Freakonomics writes of the prize-linked savings system. “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.”

Prize-linked savings accounts, it’s worth mentioning, aren’t totally  new. They’re in place in about 20 countries, yet to MSN’s knowledge, not yet in Canada. (If you know of a similar system currently active here, please let us know in the comments.)

Though, wouldn’t this be a slam-dunk way for policy makers in Canada to encourage savings yet still run a profitable, revenue-producing enterprise?

The saving deficiencies of modern Canadians are certainly well documented – hardly anyone born after 1970 does it at all, really – so perhaps the chase of a lottery without much of the risk could spark more interest in responsible finances, especially among lower-income families, who notoriously play the lottery much more than other Canucks.

Would you participate in a prize-linked savings lottery system? Would you risk your savings account interest if it meant a shot at a jackpot, without having to dump "real" money down the drain on lottery tickets?

By Jason Buckland, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...