« Freakonomics Radio

12. Is America Ready for a “No-Lose Lottery”? (Update)

2017-11-22 | 🔗

Most people don't enjoy the simple, boring act of putting money in a savings account. But we do love to play the lottery. So what if you combine the two, creating a new kind of savings account with a lottery payout?

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If you'd like to listen to free economic radio without ads the place to do that is sticker premium, five dollars a month and you can get a free month trial by going to stick your premium dot com and use a promo code freak. You also get access all our bonus, episodes and you'll be supporting our show too, but sticker premium dot com promo code freak thanks Moreover favorite things to do on the show is present a new idea. or maybe a new way to think about an old problem. We back in two thousand and ten, the first year we made for economics for you, we did such an epoch. unbeknownst to us. One of the people who heard it was so inspired by the idea that he would spend much of the next seven years, turning it into something real. Knowing this, had been a podcast turn into one idea that ended up becoming a.
Institutional momentum that I had a piece of that Let it happen it wishes super exciting. That's Michael Gardini! Yet and I may I policy adviser I, with the city of Boston, into that ten he was a twenty one year old College senior in Pennsylvania in turning in state legislative office, and I was really trying to get involved more and public policy at the time- and I listened to the Freak economics podcast on pricing, saving and I thought was a really cool idea. That was pretty common sense. In You may be wondering is price linked savings, so pressing savings account is basically just savings account in which your incentivize but more money in your savings account incentive, comes in the form of cash pay out. I'm like a lottery, but unlike a lottery in that, even if you don't win, you still have your principle. We kind of wanted to hear
as the same type of feeling that you get when you play the lottery, and I thought that I just made sense and had the potential have like a broad spectrum of support, cross like no matter what part of the Isle sat on any happened to sit on the democratic, certainly I'll. First in Pennsylvania, where he pitched India and then, when he moved to Texas to work in the state legislature there he was patient stuck with it through the very soon oh political process. Finally, this November it was on the ballot in Texas Proposition number. Seven as an authorizing amendment that would allow banks in credit unions in the state of Texas to offer pricing savings accounts as a savings option for folks set of accounts. There passed by her pretty solid margin. I think it was something around sixty percent in favour and sue here. We are today so here we are today. We thought, therefore
might be nice to replay for you, the original episode that inspired twenty one year old, Michael Gardini, who knows maybe you'll, be inspired to do something with it. There's something Peter too, I want wants to know about you. If you had to, could you come up with two thousand dollars in thirty days? That's the question. He asked a whole bunch of people in thirteen countries, including the: U S, white. thousand dollars costs. An auto transmission is about fifteen hundred most estimates of what an everyday emergencies your about are in that order magnitude, if you were to have a sick or ailing relative on the other side of the country, and you had to buy full price plane tickets to could easily be that amount and then this language come up with, as opposed to save, because what we wanted to see if people had access to resources between savings and credit and friends and family and about half of Americans are not able to come up with two thousand dollars. In thirty days,
which means that they stand only one emergency or crisis away from really quite dire circumstances. This isn't picked when the national economic statistics. This is picked up. A much more local level at a much more intimate level at what happens inside families. It's this lack of, say things as it were. That motivates me to follow, is all about the motivation he's a professor at the side, school of business at Oxford and one of his specialities consumer finance. He wants to know how many checks you write and for what? How much you borrow and why, and he wants to know how much you spend on beer on toys or a model Tickets?
from W, and why see studios this is freakin mix. Radio applaud cast at explores the hidden side of every thing. Here's your house, Stephen that North Americans are generally herbal saving money. Think about what Peter to follow just said: half arc She doesn't have enough money in the bank to survive one breakdown and it's not just poor people, into follows survey. Only twenty five percent of the people who were in between a hundred and a hundred fifty thousand dollars a year could come up with that two thousand dollars in thirty days. We are, however, excellent it spending money, houses, cars, clothes, books, electronics and lottery tickets.
households that play the lottery spend on average about a thousand dollars a year on tickets, that more than a the whole household spending, grocery stores on dairy products and beer combined this year, Americans, or by about sixty billion dollars worth of lottery tickets the other day I went to a store. A pen station in New York called Carlton cards, pretty big in the back, their rack upon rack of greeting cards and some candy bins, but weren't any customers back there. All the customers were jammed up front, at the lottery counters. According to the New York State lottery, Carlton Cards else more lottery tickets than any other store in New York career priority is one of the managers. I asked him how much lottery revenue does his store taken in a year? about eight to nine million dollar year holy
eight to nine million dollars a year and lorries hills and one store in penetration. Ok, you see people buying tickets. Although you see winners, alot tell me how excited they are. Women when remedy reindeer forget about all those losses and big. Excited like doing something: what they lose, but they discover therein. They give you a hug. They give me a kiss now highly just hymns, Angie, probably sometimes it's private You really probably don't want the hundred men area when I was in graduate school. There is a local little store by my group. But student housing units, and I will stop there on the way home and pick up milk and orange juice and noticed lots of people buying lottery tickets. Mrs Melissa Corny, she teaches economics at the University of Maryland, and so I just sort of started chatting with the vendor, and he said: oh I've. People coming in spending hundreds thousands of dollars on lottery tickets a month a year and so being a graduate student interest.
download it's and data and started playing around it was struck. In particular, we produce bend a lot of money buying lottery tickets. just sort of a passing curiosity, really I started wondering about What were they not buying in order to buy lottery tickets? So, let's walk through some of the numbers on lottery gambling in the? U S, how many people play the lottery half of half a view? As adult survey say they play the lottery at some point in the past year and would that make it the most popular form of gambling. In the? U s yes by fire soon to three american adults report gambling and its fifty percent say play lottery, the next closest casino which, as you know, about one in five adults, why do so many people play the lottery because it's fun for a dollar to you by the chance to dream big?
this remarkable. Bargain illustrates a phenomenon probabilistic oddity that economists call skinnes. That's the idea that There are some big prize way out there that correspond to a very small but but there's some potential of capturing that and that's what you're typical no money market account can't give you write to you could even have fifteen hours in your money market accounts and every month you might earn. You know one dollar on it, but there's no chance in every month, will you earn a hundred thousand hours or even ten thousand dollars. Now I know, as as an economist you're, not trying to answer this question, but as a human being- me: why is skinnes so important to us that financing changing airline? That's that's the return here, that's the The big when outcome that might allow you to try to buy beach house- or you know, to send your kids to college-
in our if it's less far out and distribution. Maybe what you need to do: make a down payment house or or by a coup, zero. Your daughter, the wedding you wanna through our for a lot of people skinnes as an irresistible appeal and so a handful of researchers like Melissa, corny or trying to harness its our the unlikely chance of changing your life with a big prize in order to solve America's low savings rate, the idea is a new financial products that combined the thrill of the lottery with the goal say: formulating more than two thousand dollars and savings account so that a broken transmission doesn't become a full blown crisis here, carnies pitch, though we know, Americans like Gambling- They have the majority of them, do it and are going to keep doing it, and so what we do is take seriously. The idea that people want some small chance
of winning a large sum of money that market that asset is. Missing from the american Landscape case law, oh wealth individuals, the only asset available to them that gives them some chance of you accumulating. A large amount of money, is state lottery and in fact in your recent national survey of a thousand adults, one in five american Adopt said their greatest chance of accumulating. Hundreds of thousands of dollars was through the lottery that number jumped to forty percent for folks making less than twenty five Nor is it here so a lot of Americans think the lottery is their only chance at winning big sums of money weren't. We take that appetite for gambling for a product like this and and attaches to a savings vehicle that offers some positive return is a win win situation. that: win, win situation and the chance to make it happen in the. U S has generated allow
enthusiasm among economists, Lake Carney and Peter to follow. He is the man has been researching what are called prized linked savings or p o s all over the world. I started in the UK because ever Protocol premium bonds, which has been around for about fifty years a little bit more and where the government offers a savings products to investors, which. at first glance would look almost perverse. Give us your money and we promise you know interest, but that's not quite how the programme works, because its give us here you can take your money out at any time, and each month we're gonna take basically, interest pool and we're gonna lottery off so that one lucky person will become
cleaner and literally every month, someone in Britain gets knock on the door from MR million or male millionaire, who tells them they have won the million pound price. There are. I believe over a hundred thousand other people in the UK who find that they ve learned the smaller prices. This was an intriguing concept, and so the research that I'd done tried to understand was this more like gambling or savings bottom line its both. Then I, this travel took me to South Africa, where I met Robert Type and he was creating protocol Mamma. The million a month account, and I think, in a word or a phrase, he described the entire economics and in substance, the value proposition for savers. Quite simply everything the guy nothing to lose its savings account where you can take your money out when you like, you always have access to your principle, and it will never go down and value. You may come out with a little bit of interest where you may come out with a little bit of a payment. You make him
the third a remarkably large payment, but you can only go up and you can never go down and then, in respect to the extensive work on behavioral economics and behavioral finance, the logic of this product is is quite obvious. People have what's called loss aversion. They much prefer to perfect protect against losses than to worry by gains. They tend to Miss estimate, small probabilities, but when you put it all together and very plain english people would rather have a small and civil life changing pay out than an almost certainty of a pittance. So I can be guaranteed in this interesting environment, to put my money way and may be able to buy a coffee with the amount of interest that might come off. A hundred dollar account, whereas I am willing to say I'll, give up that interest, but there's some possibility remote as it might be than I am,
be able to have a life, changing pay out an amount that would allow me to buy a car or a house or even more so this preference for highly skewed pay officer. You know, or the kind of pay off that would normally present in gambling or lottery products when combined with savings, turned out to be tremendously effective around the world, but it was completely absent for legal reasons, the United States. So what are those legal reasons as to follow state law typically prohibits something like a priceless savings account because it's a lottery and according to state laws, the only legal lottery is a lottery. Let's run by the state itself, nice monopolies can get it right you can hardly blame states for keeping lotteries to themselves. They generate billions and revenues and but one most states might like to help their citizens save more money. They made I'd be willing to put their own lotteries against ones,
be run by, say, a bank, but as to follow them, covered in the state of Michigan. There was a loophole in two thousand nine. He got a group of credit unions to pilot the idea. Here's Dave added, CEO of Michigan Credit Union League in a bank and can actually be pretty boring. It's not like we go to solve events and talk about how much were saving and talk about the great new feature on our new checking account its banking services. are pretty mundane, so what people, want a need is a fun way to save and in Michigan we ve come up with what we think will accomplish that it, Sir it's program called as to when and what it is said so using a lottery concept, so that if someone saves for every time five dollars they put into one of these one year: certificates of deposit, their to get a chance at cash prizes and the cash prizes are given out every month by participating credit unions ranging
fifty dollars to five hundred dollars. And then there's a grand prize at the end of the year and opportunity to win one hundred thousand dollar Grand Prize so save to win these people, what they need, which is the need to save more while giving them what they want, which is a fun way to do it of a game of chance at me, said term interesting to save something you will want to talk about at a party, say: hey, I want a grand you're. Making saving sexy by introducing a lottery element: I think so. I think I don't know if it's, if so far as to say that a sexy, but certainly of far better than talking about the point, five percent, that I'm getting on. Might my savings account at the bank so They are getting you're, getting a competitive interests, Ray you're doing what you know you need to do, which is to be more responsible in the way that you save and plan for the future, but you you're getting it. Answered some of these cash prizes, including a chance at a hundred thousand dollar cash prize and the odds are winning, are much better than
But you were the would see if you were buying lottery tickets. Even with the sputtering two thousand nine economy and low interest rates, a handful of credit unions in Michigan Open Fit. Ten thousand new savings accounts. We spoke with the First, the big winner of the save to win programme, eighty seven year old buildings. So you put seventy five of your own money into a credit unions. Savings account way and, as a result, you were entered into a lottery for which you want a hundred thousand dollars right lessons like it. a good deal to me. What do you think well, it is, it is help make alive. No tell me what you ve done with the money Billy well. I've had to replace a furnace just a month ago, and I
then now water softer- and I have put my money aside- further taxes and I do, however, another savings that I don't touch for just so along, and I can add to it then when save to win surveyed so its customers, they learned that more than sixty percent of them had either play the lottery or gambled in the previous six months. Fifty five percent meanwhile had had no,
savings plan save to win was beating its goals in reaching the customers it was supposed to reach. It makes you wonder what would happen if a programme like this took over an entire country, while my name's Robert Kpi works at first. I shall bank for eleven years where I headed up the investment product house, which was a business unit that really focused on retail deposits, both consumer corporate deposits and Our focus was trying to look at ways of growing the funding base of the bank. First national bank or Fn B is in South Africa in two thousand five. It started. what would turn out to be a phenomenally successful prize linked savings programme. It was born. Out of South Africa's financial problems. As the country struggled to put the apartheid air behind it, millions and millions of Black South Africans did not use banks for anything. Robert Cape wanted to
find a way to get some of them in the door now in South Africa. so much of the population is on banked summit of the savings ass, it literally sitting on the mattresses. Now this is a double effect to the one that does really do badly at it: if that that funding from the mainstream banking environment so it can't be harnessed to two leaned out and and fund economic growth, because funding- tends to come in from consumers and then get Linda ought to businesses. I who can and create jobs, That was one parliament that the second problem was really that these people with under the bank. Accounts were excluded from the banking system and by being Through from the banking system, you miss her
the semi benefits which really help with people's individual development. For example, developing credit records been able to be built- exposed to having your money stolen or less than the way home, but CAPES Bank had a problem interest rates at the time, weren't keeping inflation. So putting your money and a plain old savings account my actually erode its value. Capes job was to make it worthwhile for customers to deposit new money so instead of simply offering an account with a scrawny interest rate. He'd offer an account with practically our interest rate at all, but it came with the chance for a really big payday. So what we did we literally pooled? one of these little point to five percent of interests and in what we did. We they darted interests in lump lump sums, few people, so we re paid out A hundred fifty people a month in love some prizes, so the first
a price, would be a million round which is a normal, spend money and in South Africa and Elizabeth three prices of a hundred thousand round and the women. Don't thousand round and a few prices of of a thousand round. So really what we d be just connect. The little bits of interested would be paid on. it is these occur. All these little counts, unimpeded out randomly to a few select vacuum. So let's say I live in South Africa. Take the money, I'm learning and put it under my mattress or maybe by some high risk equities for offering me the security of a bank account and the excitement of a chance to win a million ran right. What do you call this idea? because the million a month account Mamma and Burma became the the. Your name for it and you're the man who gave birth to Mama. Yes, successful was Mama hugely I'm probably to successful efforts for its own good,
Mama attracted a million new customers to capes bank other banks in South Africa, took note and complained regulators and then came the south african state lottery. will we engage with it before we launched, we wrote them and asked him the opinion on the product. Direct selling. back saying that they didn't think it was a lottery. They thought had fallen to a promotional competition, possible legislation and that I suggest that we must comply with the requirements of the promotional common competition and belonged standing. Nothing was heard for from him for six or seven months. and they make eye contact us to say. Actually, they don't like what you're doing, and I think that it's a lottery now So when you are starting out- and there was very little money in your coffers- they thought it wasn't a lottery. But then, after a guy going for a while, and you had how much a hundred million dollars about
two hundred million dollars abided by the tummy because down and but more importantly, it was ever million customers that we had brought in and the national lotteries Boyd changed its mind than I thought That thing that we said a little while ago is not a lottery. Now looks a lot like a lottery discs, and what did they do then? It took us to court to have other repress, engage with them and try to discuss it, but it was very clear that were in no position not wanting to even try to discuss what dishes were and they took us to court to have its close down Hugh MILAN to its is the man who took Mamma to court he's a lawyer represented the south african National lottery MILAN, to its argued that first, national banks, Mama programme infringed upon the state lotteries right to be the only game in town the case, when all we have to South Africa's Supreme Court of appeals
in MILAN to its one. Every time Hugh, you must be very good. I can answer that now, when Mama was created about seventy percent of low income, South Africans were said to be unbalance. The government was eager to cut this number, mama made it easy to get people in the bank. All they had to do as deposit a minimum of a hundred rand or about fifteen dollars into a thirty two day call a counter what we call a certificate of deposit so Hugh. What's wrong that will need a space. It isn't inducement to were to bank, but Sir, for the period in which share in it. Your money is deposited in the bank. You do not receive any interest and scientific as a relatively high interest rates. The The part of the motivation around the account was, it was said TAT. It is being a no cost accounts,
but which was correct, but also there was no interest earned and South Africa on a city to day call it can't you interest rates is fairly substantial. So, for the day Sir, when your money wasn't, will you entered earning any interest? Whilst it was sir? Whilst it was sitting in the bank accounts under the bank was earning, substantial sums, I think the year the idea was but it was driven towards the and banks and hence the minimum amount of a hundred grand but surreal typically substantial amounts have been deposited into the inter counts, with the chances of effecting the million rand return. Now how successful was the savings plan run by fn be in actually drawing in money from either the previously on act or citizens at large. How much money did they taken in? What period of time will live?
substantial money taken and not necessarily from the UN banked. My understanding is that substantial funds came from the irregular, regular customers and really the customers- you had efficient means that they had the essentially free Any sitting around that they could afford to put aside for, I am for the fifty two days without effecting any return when you real real return. Some understanding is that the funds were deposited not predominantly by the bank, but really predominantly body by the banks and Andy at. Why would you and predominantly body more wealthy yeah a customers? The return at the bank made was was fairly substantial, Mohammed, oh, it's. His argument seems a bit at odds with itself. He says the bank took advantage of people by failing to give them
I interest rate, but also that most people who bought into Mama warrant the unbalanced that they were wealthier customers who had as he puts it, free money sitting around or if they want to play the bank's lottery instead of the national lottery? Why should they be free to choose but MILAN to its was doing his job, protecting the interests of his client, the national lottery and it worked. Mama was shut down, Robert Cape, the man who created Mama, first national bank stands by its success. He says the excitement of the lottery pale got people in the door so fast that the cost of acquiring a new bank customer fell from three hundred dollars to five dollars, but that was Mama's goal in the first place to expand banking capes as twenty percent of What counts were opened by people who were previously on banked shore? Wasn't them? already but Mamma reached that level in just the first three years
and it took in two hundred million dollars in deposits after Mama. was shut down by the national lottery? Robert Cape was invited to Washington DC. To talk to federal banking officials about the programmes CS coming up. Next, when you play state lottery, state likes to keep cool, oh yeah, it's a lot of money they take off and U S? Treasury department thought about breaking up the steep lottery monopoly, one of the things it I've learned in my role as Treasury is dead. Picking fights said one doesn't have to pick is not. I had not the wisest course of action.
Today, we are revisiting an episode from the deep archives of economics from two thousand and ten, because one listener who heard it way back then Michael Gardini took the idea. spent seven years working to make it a reality. He finally That is why this past election day, when Texans past state constitutional amendment, credit unions and other financial institutions to offer prize linked savings accounts, Why did such a relatively simple idea require something is drastic as a constitutional amendment, seven state of Texas, the state, Scully had a monopoly on lotteries and because this considered a lottery. It could not go or it without an amendment to this day constitution it's hard for anyone, but the government to run a lottery when the government
the only lottery should be run by the government itself, and that has been the biggest obstacle to bringing people s plans to the United States. The biggest lottery in this country is run by New York state which today it's more than nine billion dollars and annual sales, but in order to get their New York like most states have a lottery had to rewrite its existing laws prohibiting any kind of bling. Here's former New York State Lottery Director, Gordon Magenta, newer first began in nineteen sixty seven and it was the second stage after New Hampshire to come in what was the original this. Was it a budget shortfall essentially did the state feel we need money? We can. We can avoid this ban. On gambling in the state and and come up with a way to do it. I think it was so both a desire to raise money and also, I think it was a recognition that term what's going on anyway and it was an attempt to some regulate an activity that they knew was very common among citizens
and you know whether you go back to the other- that the numbers games that existed in urban areas and, quite frankly, will exist or rub those kind. Activities and even sports betting today, which of course technically is illegal, but we all know is a huge business I think that was a recognition on the part of lawmakers that much like prohibition better to tat, regulate them to you, know, ostensibly call something illegal and pretended doesn't go on state governments do more than tat and regulate their lotteries. They take a generous cut for themselves. In gambling circles, the commission taken whoever operates? The game is known as the rake with state lotteries. The rake can be as high as sixty percent That means that as little as forty percent of the money taken in from ticket sales ends up in the pool pays the winnings. The rest of the money, usually Was to education, it's an extra tax for schools, but paid only by
people who play lottery and because to cover overhead marketing and sales commissions compare the lotteries rake to the slow machines in a casino baby out more than ninety percent- oh yeah, it's a lot of money. They take off that again. Is it Economists, Melissa, Carney States as it stands, We run the lottery. Do you don't, sir? At least initially it was while, let's, let's provide an alternative legal lottery. Product or numbers product writing to the illegal groups. It'll be transparent and it won't be corrupt, but then they declare them I was monopolies and they take take a big cut, which is, we can think. That's really high price consumers are paying a very high price to buy this type of product. They can't get it from anywhere else legally and dumb and the name
They have the lottery commissions, have the mandate to increase revenue, so they they innovate. They advertise the market. They they serve behave like monopolise. What do we know about people who play the lottery? What's, for instance, the Socio economic breakdown? Okay, so this prize is a lot of people, but people throughout the Socio economic distribution place the state lotteries, and so it's? U dont roughly fifty to sixty percent of man, roughly fifty sixty percent of women, roughly fifty to sixty percent of people across the education spectrum, so people with your high school dropout, Highschool, degree, college graduates and its and when you look at the absolute dollars reported spending it it's it's not that different across the income distribution, Sir sort of lower income households spend about as much
our terms as higher income households. The flip side of that, of course, is that it means it being a larger share of lower income. Households total spending, some states have a monopoly on lotteries and the people who can least afford to play the lottery. The people who, in the survey that Peter to follow, conducted, can't raise two thousand dollars when their furnace dies they buy just as many tickets as people. A lot more money, though, freeze rake, is so big that you can reasonably exe to win only about fifty cents for every dollar you pay in an that's. Why Peter to follow and his colleagues are. packing prize linked savings in the? U S, and yet, for now it's illegal, I the reason that this product exist elsewhere and not here is because in the end, was accidents of history, but the path that history is taken in America over a long period of time as I'm not a banking
expert. Nor am I a lawyer, but it's been explained to me that the prohibitions on banks gauging and lottery activities goes back to the nineteen thirties. When for whatever reason. The activities that some banks pursued made regularly this very nervous about them, having anything to do with lottery, which is why you walk into a bank and by a lottery ticket and so that They have been really smart legislation back then They still be smart legislation now, but it's to have in this instance, throne. not only lotteries but also savings programmes that have chance elements to it. So that's half the equation. The other half of the equation is there. As a public finance matter, Americans AIDS and localities have rely It on lotteries as a way to close public finance deficits. There are other ways
closer deficits, and unfortunately, they're gonna be quite large, I suppose, looking in the future, but when public entities were given the right to use this vehicle to raise funds, other parties were prohibited from using the same vehicle and therefore there are provisions against private parties running lottery, in virtually every state. So the combination of laws to try to protect, I suppose the safety and soundness of banks and laws to permit states and local governments to have a kind of preferential access to this form of funding has led to the situation where I think this product, which no one ever meant outlaw, has become outlawed. It makes sense but a state run lottery, might surprise linked savings plan as a natural rival, but the New York state lottery for a little, while least actually considered teaming up with Peter to follow on appeal s plan. Gordon agenda again, we called it a no lose lottery ticket and basically, what
the concept is, is that you buy a ticket in and it would be an expensive ticket lets a hundred dollars. But you, ever lose the the base of it and then we pool those funds, invest them just like a mutual fonder. Anything else like that and then the investment gains become the prize pools and then every month or so instead of earning. Zero percent on savings, account There's a lottery and different account holders win prizes. Just like would with the lottery game, so We went through a lot of this research when we presented to the efficacy, and this was an empty. I see committee on. trying to encourage higher savings rate among low income people and also to embrace what, but they were, two as the unbalanced and end to get low income people
they use banking facilities of financial services. Better Magenta says he couldn't make the math work out for the New York State lottery, but for the Florida lottery it's not about the math about the law, I asked LEO De Benigno the former Florida lottery Secretary, what he thought about a prize linked savings plan from a purely lottery perspective. I think the Florida lotteries the only entity in Florida that can operate a lottery game, so what you described is legal a lottery game, then I've got to say It probably sounds illegal. Under current Florida law states protect their lotteries, is the lotteries bring in lots of money for the states? Some money goes to education and other worthy seeming causes, but even deepened? new admits. That's not what motivates people to play. I think people, Floridians in general are players. They like
the idea that there that the money they spend on the lottery that a portion of it. In this case it is significant portion, does go to fund education, I am the first to say that they don't play the lead. By and large to help fund education in Florida, people play the lottery to win They like the prizes they like the excitement they liked the fund with the possibility of winning know. Sometimes, ten twenty fifty dollars, and sometimes many more he multi millions of dollars. I think the funding education is ancillary. It's it's an extra bonus that the public views the lottery as a as different in unique in and fund way to be able to fund at least some of the things that are education system needs. The lottery is famously been called a tax on the stupid. You get terrible odds and the state
weeks off a huge amount voting your harder in cash into an additional schools tax now you can understand why a state lottery, commissioner, like LEO deepening, Yo Florida Lakes, things just the way they are. But what about the other government officials who work on things like consumer, section what about some. Unlike the former assistant secretary for financial institutions at the Treasury department, his name is Michael BAR. I asked bar if he ever play I haven't really played the lottery. Probably. If I went back over over my forty five years, I may have bought a scratch ticket or too in my twenties now. Why do you not play the lottery it's a fool's errand As you undoubtedly know, there are a handful of people who will make some money out of the lottery, but most people- the time will lose money
it's not add, not a great way of spending one scarce resources, I dont know oh, if you're aware of the programme, that's been happening up in Michigan with the credit unions, where uprising savings programme is actually under way. Are you familiar with that called the save to win programme? I have I actually studied that, so the folks who are trying to make this happen come up against a very simple reality, which is that its typically illegal that private institution like a banker. Credit union is not allowed to run a lottery according to state law that state law typically forbids gambling and in order to allow a stateless say to run a lottery itself. There is a loophole that be written in those loopholes have been written. Most states do have their own lotteries, but for someone else to come in and do it, it would be illegal if you looked at the landscape,
and thought in my role as as in Treasury here, I would like to encourage people to save more I'd like to make it worth. While to save more and I'd like to the barriers that prevent them from participating in projects it that let them save more. Would you be in favorite sponsoring or trying to trying to get rolling some legislation that would allow for a widespread deployment of rising savings. Do you think that something that Treasury should get its get its momentum behind one other thing said. I've I've learned in my role as Treasury is dead. Picking fights it one doesn't have to pick is not or not the wisest course of action unless it something it's absolutely essential and take on, and I wouldn't have put that in category of of high priorities, TED Talk again to a discussion of state gaming law, because you don't work, but let me, but but if your job
is to help american families save more and be better financial stewards generally, and we, The tens of billions of dollars are being spent on lottery tickets every year, which you call the fools game, and what alternative is to offer bank savings accounts that retain them? thereby a customer, can put in a hundred dollars enter a lottery. Maybe when probably not maybe and keep the hundred dollars isn't that something that's worth considering, even in a politically fractious environment, when the goal seems to be well when the potential benefit getting people to save more seems to be much larger than the potential downside of during some state lottery, commissioners at say, so
I think there are a lot of different ways of encouraging greater saving some on all american families, and I I think we should continue to an innovate and to try new approaches. I think that the question posed is, is potentially one aspect of one way to do that I dont think we yet no enough from the research to say it's. The kind of thing that we think needs stood to happen on a wide scale in to be effective and I that we have a number of petitions strategies to help the needs of american families to save that we haven't really fully explored done maybe razor somewhat lower set of issues and barriers, all right, so the prize linked savings idea, may not be universally beloved, but up in Michigan, they, like it fine and, in fact, see
two thousand nine. When Michigan came the first state to allow p l s accounts more than twenty states have followed suit with Texas, as we ve been hearing today being just the latest now. Maybe you think it is a terrible idea. Maybe think people ought to save money on their own, but you know what we don't. People respond to consent and for a lot of us incentive to save for retirement, for emergencies, for whatever is weak. Why? Well, because the pay off is abstract and it's too far in the future is the opposite of schooners. This dilemma doesn't just apply to saving money, thickly school get the third or fourth greater You want me to do what to bust my button school for ten more years and then go to college just to get some job probably won't like
or think about crime in punishment. If you look at the data, it turns out that the death penalty does not work as a crime to turn. Why? Because, as it currently practiced with the punishment waiting so far out in the future, through a maze of delays and appeals. The incentive simply isn't strong enough to stop me from pulling the trigger right now. Sometimes you need stronger incentives, or maybe some good smoke and mirrors that's kind of The prize linked savings plan could offer in a country where it's easy, to borrow your way to bankruptcy, weakened by law, retook its anytime, you buy a loaf of bread. P. O S is like a big neon, billboard
the turns a boring old savings account into an exaggeration of itself sticks of money, and here it says, and you just might hit big payday, and even if you don't want your money still belongs to you by that for a dollar when you, Economics radio is produced by w when my c studios and W productions this episode was produced by Bahrain. Lamb is lucky lottery number is our staff also includes Alison, Hockenberry marriage. Greg results, key Stephanie, Tam, Eliza, Lambert, Emma Morgenstern, Harry Huggins and Brian Gutierrez. You can subscribe to for economics, radio, on apple podcast teacher or were every get your podcast? You should also check out our archive at free
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Transcript generated on 2021-01-22.