Prize-Linked Savings Take Step Toward Broader Scale

article | September 29, 2014

    Melissa Goldberg

Guest Blog Post: This post is contributed by Melissa Goldberg, Innovation Strategist at Doorways to Dreams (D2D) Fund. You can learn more about D2D by visiting their website.

Aspiring savers got a nice surprise earlier this month, when the American Savings Promotion Act (H.R. 3774) unanimously passed from the U.S. House of Representatives. H.R. 3774 would promote savings by allowing financial institutions to offer more prize-linked savings (PLS) products, offerings that seek to reward positive savings behavior through the promise and excitement of winning. More than half a dozen states have changed applicable state laws to allow credit unions within their borders to offer PLS products, but select federal regulations unintentionally limit the expansion of this savings-enhancing tool to other financial institutions. The American Savings Promotion Act seeks to remove those regulations and marks a significant opportunity to expand the reach of PLS products by clearing the way for all interested financial institutions to offer PLS products.

Savings is a key component of economic mobility. It helps Americans climb the economic ladder and cushions them against all-too-common financial shocks. However, it is no secret that Americans are not saving enough. Nearly one quarter of Americans have reported that they could not come up with $2000 in 30 days, and the National Review recently called this savings crisis the second most serious domestic policy issue. The expansion of PLS products can play a role in helping Americans solve this savings problem.

Save to Win™ (STW), the nation’s largest PLS product, has shown great success in helping individuals save. Offered by credit unions in four states, STW is a special, balance-building certificate of deposit (CD).With each deposit of $25 or more, a saver is entered into a raffle for cash prizes. The product has effectively motivated savings, particularly for lower-income consumers--since 2009, over 50,000 accountholders have saved over $94 million in STW accounts. Significantly, between 62-81% of these accountholders were financially vulnerable.

PLS products are tested, safe, and successful, and have experienced broad coverage from media outlets including The New York Times and The Wall Street Journal. They have also been studied extensively by researchers from Harvard, the University of Maryland, and the University of Oxford. The Bipartisan Policy Center called PLS accounts “lotteries with no losers” and stated that the American Savings Promotion Act deserves “careful consideration.”

The passage of the American Savings Promotion Act in the House was an important step in the expansion of prize-linked savings products. The bill had bipartisan support and was highlighted as an opportunity to help American consumers develop smart savings habits. The bill was introduced by Representatives Derek Kilmer (D-WA) and Tom Cotton (R-Ark).

With the companion bill (S. 1597, introduced by Senators Jerry Moran (R-KS) and Sherrod Brown (D-OH) currently awaiting action in the Senate, there is still an opportunity to support the expansion of prize-linked savings by letting your Senators know you support PLS. Increasing access to these products poses an important opportunity to help more Americans save in an engaging way and will broaden the impact of an innovative financial solution.


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    Melissa Goldberg