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Savings and Prize-Linked Savings Accounts

Author

Listed:
  • Atalay, Kadir

    (University of Sydney)

  • Bakhtiar, Fayzan

    (University of Sydney)

  • Cheung, Stephen L.

    (University of Sydney)

  • Slonim, Robert

    (University of Sydney)

Abstract

Many households have insufficient savings to handle moderate and routine consumption shocks. Many of these financially fragile households also have the highest lottery expenditures as a proportion of income. This combination suggests that Prize-Linked Savings (PLS) accounts, that combine principal-security with lottery-type jackpots, can increase savings among these at-risk households. Results from an online experiment show that the introduction of PLS accounts increase total savings and reduce lottery expenditures significantly, especially among individuals with the lowest levels of savings and income. The results imply that PLS accounts offer a plausible market-based solution to nudge individuals to increase savings.

Suggested Citation

  • Atalay, Kadir & Bakhtiar, Fayzan & Cheung, Stephen L. & Slonim, Robert, 2012. "Savings and Prize-Linked Savings Accounts," IZA Discussion Papers 6927, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp6927
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. How to increase savings: add a lottery!
      by Economic Logician in Economic Logic on 2013-09-30 19:55:00

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    Cited by:

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    2. Filiz-Ozbay, Emel & Guryan, Jonathan & Hyndman, Kyle & Kearney, Melissa & Ozbay, Erkut Y., 2015. "Do lottery payments induce savings behavior? Evidence from the lab," Journal of Public Economics, Elsevier, vol. 126(C), pages 1-24.
    3. Felipe S. Iachan & Plamen T. Nenov & Alp Simsek, 2021. "The Choice Channel of Financial Innovation," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(2), pages 333-372, April.
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    5. Shawn Cole & Benjamin Iverson & Peter Tufano, 2022. "Can Gambling Increase Savings? Empirical Evidence on Prize-Linked Savings Accounts," Management Science, INFORMS, vol. 68(5), pages 3282-3308, May.
    6. Timmons, Shane & Robertson, Deirdre & Lunn, Pete, 2022. "Combining nudges and boosts to increase precautionary saving: A large-scale field experiment," Papers WP722, Economic and Social Research Institute (ESRI).
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    8. Burke, Jeremy, 2021. "Do prize-linked incentives promote positive financial behavior? Evidence from a debt reduction intervention," Journal of Public Economics, Elsevier, vol. 204(C).
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    More about this item

    Keywords

    personal finance; experimental economics; savings; lotteries; individual decision making;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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