Jon Guryan Finds Prize Payments Induce Savings Behavior

Jon Guryan Finds Prize Payments Induce Savings Behavior

Jon Guryan

Americans are more likely to save if they have the option of winning a prize when they make a deposit. That’s what SESP associate professor Jon Guryan found when he compared the use of prize-linked savings accounts with standard interest-bearing accounts.

Guryan and his colleagues designed a lab experiment to investigate whether the option of a prize-linked savings option would induce people to save. The savings rate has declined sharply in the U.S. over the past 30 years, and many policies have attempted to induce more savings behavior.

Prize-linked accounts typically enter the saver’s name into a lottery when he or she makes a deposit. For example, for each $20 deposit, savers might get the chance to win a prize amount, and either way the saver keeps the deposit. In that sense, people can’t lose.

The appeal of prize-linked savings is especially strong for men, lottery players and people with low bank balances, Guryan’s research found.

“Low-income individuals tend to spend a disproportionate amount on lottery tickets, but also tend to save at low rates. We're finding that if banks can combine savings accounts with elements of lotteries, they may be able to encourage people to save who wouldn't otherwise,” says Guryan, an economist.

“This finding should be of immediate interest to the research and policy community interested in innovations in the savings sphere,” the researchers state in their working paper. Guryan researched the topic with Emel Filiz-Ozbay, Melissa Kearney and Erkut Ozbay of University of Maryland and Kyle Hyndman of Maastricht University.

“The results were quite striking,” Kearney told PBS NewsHour on February 1. For a given interest payment, banks “can actually entice a lot more deposits and more savings if they structure the payments to have some lottery or prize-linked component.”

With the passing of the American Savings Promotion Act in December, banks can now offer prize-linked savings programs. Previously these programs were offered only through credit unions in a few states.

View the PBS NewsHour segment on "Savings Programs Tied to Prizes Become More Widely Available"

By Marilyn Sherman
Last Modified: 2/3/16