Can Gambling Increase Savings? Empirical Evidence on Prize-Linked Savings Accounts

62 Pages Posted: 25 May 2014 Last revised: 21 Sep 2017

See all articles by Shawn Allen Cole

Shawn Allen Cole

Harvard Business School

Benjamin Charles Iverson

Brigham Young University

Peter Tufano

University of Oxford - Said Business School; National Bureau of Economic Research (NBER); University of Oxford - Said Business School

Date Written: August 8, 2017

Abstract

This paper studies the adoption and impact of prize-linked savings (PLS) accounts, which offer random, lottery-like payouts to individual account holders in lieu of interest. Using micro-level data from a bank offering these products in South Africa, we show that PLS is attractive to a broad group of individuals, across all age, race, and income levels. Financially constrained individuals and those with no existing deposit accounts are particularly likely to open a PLS account. Participants in the PLS program increase their total savings on average by 1% of annual income, a 38% increase from the mean level of savings. Deposits in PLS do not appear to cannibalize same-bank savings in standard savings products, on average. Instead, PLS serves as a substitute for lottery gambling. Exploiting the random assignment of prizes, we also present evidence that prize winners increase their investment in PLS, sometimes by more than the amount of the prize won, and that large prizes generate a local “buzz” that leads to an 11.6% increase in demand for PLS at a winning branch.

Keywords: household finance, banking, savings, prize-linked savings, lottery

JEL Classification: D14, E21, G21, L83

Suggested Citation

Cole, Shawn Allen and Iverson, Benjamin Charles and Tufano, Peter, Can Gambling Increase Savings? Empirical Evidence on Prize-Linked Savings Accounts (August 8, 2017). Saïd Business School WP 2014-10. Available at SSRN: https://ssrn.com/abstract=2441286 or http://dx.doi.org/10.2139/ssrn.2441286

Shawn Allen Cole

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

Benjamin Charles Iverson (Contact Author)

Brigham Young University ( email )

United States

Peter Tufano

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0) 1865 288551 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain
+44 (0) 1865 288551 (Phone)

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