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

Cole, Shawn A., Iverson, Benjamin Charles and Tufano, Peter (2014) Can Gambling Increase Savings? Empirical Evidence on Prize-Linked Savings Accounts. Said Business School Working Paper 2014-10.

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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 a PLS product was attractive to a broad group of individuals, across all age, race, and income levels. Financially-constrained individuals and those with no other deposit accounts were particularly likely to open a PLS account. Participants in the PLS program increased their total savings on average by 1% of annual income, a 38% increase from the mean level of savings. Deposits in PLS did not appear to cannibalize same-bank savings in standard savings products. Instead, PLS appears to serve 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” which lead to an 11.6% increase in demand for PLS at a winning branch.

Item Type: Oxford Saïd Research Paper
Keywords: household finance, banking, savings, prize-linked savings, lottery
Subject(s): Finance
Centre: Faculty of Finance
Date Deposited: 23 Jun 2015 17:46
Last Modified: 23 Oct 2015 14:08
URI: http://eureka.sbs.ox.ac.uk/id/eprint/5361

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