NEW YORK (9/24/14)--Prize-linked savings accounts, a credit union-backed program that incentivizes members to save in a fun and innovative way, earned the national spotlight this week with two major online publications featuring the programs.
On USNews.com, Bill Hampel, chief economist for the Credit Union National Association, was quoted saying that research shows many people who wouldn't normally consider building up their savings, opened and kept open savings accounts because of the programs.
"It is really hard to get some people to build up savings balances, especially in the bottom half of the income distribution," Hampel told U.S. News and World Report (Sept. 23).
Hampel also acknowledged a "lottery style" savings product may raise some eyebrows, but that it's only a matter of time before lawmakers see the true value of the program.
Prize-linked savings programs reward members who put money into savings accounts with entries into raffles for cash prizes. Those who win the monthly and annual raffles pick up some extra cash, while those who don't still walk away with solid savings accounts and stronger financial health.
"Lower-income people lose money in lotteries with no redeeming values whatsoever, so there's a stigma (around traditional lotteries)," Hampel said. "It takes a little while for policymakers to get their arms around combining something that can be bad for consumers and turning it into something that can be good for consumers."
In an article from Bloomberg.com this week, meanwhile, the author notes the popularity of prize-linked savings accounts around the world. The programs thrive in places such as the United Kingdom, New Zealand and Sweden.
The article also highlights the largest of the prize-linked savings programs found in the United States, Save to Win, which began in Michigan in 2009 and is now available in four states.
Prize-linked savings accounts are also legal in Nebraska, North Carolina, Washington, Connecticut, Indiana, Maine, Maryland and Rhode Island. A bill making its way through Congress could make it legal for banks to offer the accounts, according to Bloomberg.com.
"A prize-linked savings account won't help raise incomes, and it won't lower the costs of health care or housing," the article's author, Ben Steverman, said. "But it may nudge Americans to pay just a little more attention to their savings, so that an unexpected expense doesn't become a financial disaster."