On PBS Newshour last weekend, a savings concept was highlighted that takes advantage of people’s interest in playing the lottery. In the state of Washington, a credit union is seeing the benefit of this concept which is called “Save to Win.” Per a Seattle Times article this past March:
“The ‘Save to Win’ plan promises monthly and annual drawings for cash prizes, with one entry ticket issued for each $25 deposit made into a 12-month certificate of deposit. ‘The whole idea is to entice people to save,’ says Lee Wajnor, vice president of marketing at O Bee Credit Union in Olympia, who lobbied legislators to get the program approved in 2010. ‘People are creatures of habit,” and the lure of a lottery may be enough to nudge them into saving,’ he says.”
The entire Seattle Times article can be found with the attached link: http://seattletimes.com/html/businesstechnology/2020671264_sundaybuzz31xml.html
The beauty of the plan is people cannot lose their money. They can only win with small stipends such as $50 awarded monthly or a larger prize at year-end, such as $5,000. Since each $25 increment increases your chance of winning, the monthly winners usually reinvest their small awards into their savings account.
Variations of this model are being done in other states with Michigan credit unions being the first. Michigan’s efforts started in 2009 and the credit unions now have 12,000 participants. Note that credit unions are the only group able to have a savings lottery at this time, as banks are restricted from so doing. Since copying is the sincerest form of flattery, this idea should spread.
The credit unions attest they are losing money on this concept today, but by getting people to not throw their money away on a state lottery, which is in essence a regressive tax with so little chance of winning, the credit unions are helping people help themselves. And, with some critical mass, the credit unions will break even. Yet, by helping people gain more financial stability, the credit unions will likely benefit from other banking services the participant may need.
As I write this, I remember one of our blogging friends telling the story about how she was driving a friend around and the other person asked “Can we stop by the convenience store, so I can buy a $5 lottery ticket?” The author of the story said “Here, give me the $5” and proceeded to throw it out the window. When her friend protested, the author said, “You accomplished the same goal and now you have a better story in throwing your money away.”
I applaud this savings lottery concept. It appeals to the hidden gambler in all of us, but also let’s people save their money and not throw it out the window. The winnings are not headlines worthy, but the chance of winning is much greater than in the state lottery and becomes even more so the more you save. And, winning $5,000 or $10,000 is nothing to sneeze at. Yet, even if you don’t win, you still gain as you have at least a $300 plus interest balance after one year. And, that is better than $300 blowing in the wind.