Research Summary
Research Summary
Can Gambling Increase Savings? Empirical Evidence on Prize-linked Savings Accounts
Description
This paper studies whether prize-linked savings (PLS) accounts, which offer random, lottery-like payouts to account holders in lieu of risk-free interest, can aid individuals in increasing savings levels by adding the chance to “win big.” Using micro-level data from the third largest bank in South Africa, we show that PLS was attractive to a broad group of individuals across all age, race, and income levels. We find that 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 1.1% of annual income, a 31% increase from the mean level of savings. Deposits in PLS did not cannibalize savings in standard savings products. Instead, PLS appears to act as a substitute for lottery gambling. 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 leads to a 11.6% increase in PLS demand at the winning branch.