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Savings and Prize-Linked Savings Accounts

  • Atalay, Kadir

    ()

    (University of Sydney)

  • Bakhtiar, Fayzan

    (University of Sydney)

  • Cheung, Stephen L.

    ()

    (University of Sydney)

  • Slonim, Robert

    ()

    (University of Sydney)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6927.

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Length: 32 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6927
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