Researchers have suggested that gambling may be a useful method for encouraging low-income families to save more money. Through the use of prize-linked saving (PLS) accounts, families could save 25% more money in the long term.
The study was presented by economists at the University of Sydney. Professor Robert Slonim, Dr Kadir Atalay, Dr Stephen Cheung and honours student Fayzan Bakhtiar conducted an online experiment to determine just how effective PLS accounts would be. 500 participants took part in the experiment online.
They were given $100 and three options: receive the cash within two weeks, place it into a traditional savings account or place it into a PLS account. The money placed in to the PLS account would guarantee a payoff of the principal investment, and provided entry into a lottery with a $1,000 prize.
At the end of the experiment, participants were asked about their thoughts. 26% of participants had no interest while 7% were undecided and 12% respondents expressed a positive interest. 56% would take part in a PLS, but it would depend on the characteristics, such as prizes and odds of winning. Respondents that spend more than $150 on lottery products and people with less than $10,000 saved showed more interest in PLS accounts.
"Our study shows that PLS accounts indeed increases total savings quite dramatically – by over 25 per cent when PLS accounts became available – and that the demand for the PLS account comes from reductions in lottery expenditures and current consumption," said Professor Slonim. While you would never think that gambling would actually encourage people to save money, the study shows that this unique lottery has the potential to.
The research team is confident that introducing PLS accounts in Australia would help low-income residents save more.
The benefits have been seen in over 20 countries around the world, and the same effect could be had locally.
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