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Making Savers Winners: An Overview of Prize-Linked Savings Products

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  • Melissa Schettini Kearney
  • Peter Tufano
  • Jonathan Guryan
  • Erik Hurst

Abstract

For over three centuries and throughout the globe, people have enthusiastically bought savings products that incorporate lottery elements. In lieu of paying traditional interest to all investors proportional to their balances, these Prize Linked Savings (PLS) accounts distribute periodic sizeable payments to some investors using a lottery-like drawing where an investor’s chances of winning are proportional to one’s account balances. This paper describes these products, provides examples of their use, argues for their potential popularity in the United States —especially to low and moderate income non-savers—and discusses the laws and regulations in the United States that largely prohibit their issuance.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16433.

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Date of creation: Oct 2010
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Publication status: published as Kearney, Melissa S., Peter Tufano, Erik Hurst, and Jonathan Guryan. “Making Savings Fun: An Overview of Prize-Linked Savings,” in ed. Olivia Mitchell and Ammamaria Lusardi, Financial Literacy: Implications for Retirement Security and the Financial Marketplace, Oxford University Press, 2011.
Handle: RePEc:nbr:nberwo:16433

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References

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  1. Mauro F. Guillén & Adrian E. Tschoegl, 2001. "Banking on Gambling: Banks and Lottery-Linked Deposit Accounts," Center for Financial Institutions Working Papers, Wharton School Center for Financial Institutions, University of Pennsylvania 00-25, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Cletus C. Coughlin & Thomas A. Garrett & Rubén Hernández-Murillo, 2006. "The geography, economics, and politics of lottery adoption," Review, Federal Reserve Bank of St. Louis, issue May, pages 165-180.
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Cited by:
  1. Nicholas C. Barberis, 2013. "Thirty Years of Prospect Theory in Economics: A Review and Assessment," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 173-96, Winter.
  2. Tufano, Peter & De Neve, Jan-Emmanuel & Maynard, Nick, 2011. "U.S. consumer demand for prize-linked savings: New evidence on a new product," Economics Letters, Elsevier, vol. 111(2), pages 116-118, May.
  3. Annamaria Lusardi & Olivia S. Mitchell, 2011. "The Outlook for Financial Literacy," NBER Working Papers 17077, National Bureau of Economic Research, Inc.
  4. Emel Filiz-Ozbay & Jonathan Guryan & Kyle Hyndman & Melissa Schettini Kearney & Erkut Y. Ozbay, 2013. "Do Lottery Payments Induce Savings Behavior: Evidence from the Lab," NBER Working Papers 19130, National Bureau of Economic Research, Inc.
  5. Thomas F. Crossley & Hamish Low & Sarah Smith, 2013. "Do Consumers Gamble to Convexify?," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 1314, Koc University-TUSIAD Economic Research Forum.
  6. Nicholas C. Barberis, 2012. "Thirty Years of Prospect Theory in Economics: A Review and Assessment," NBER Working Papers 18621, National Bureau of Economic Research, Inc.
  7. Annamaria Lusardi & Daniel J. Schneider & Peter Tufano, 2011. "Financially Fragile Households: Evidence and Implications," NBER Working Papers 17072, National Bureau of Economic Research, Inc.

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