Banking on the Lottery

A few weeks (months?) ago I heard a story on NPR about a credit union that had begun a lottery program, as an attempt to tap into a new market and encourage saving among a population that has the most difficult time with putting money away.

I later found this article about the program.

The average American household snaps up about $500 annually in lottery tickets, whose appeal is especially strong among those with lower incomes. Some estimates suggest that more than 80 percent of lottery revenue comes from households making less than $50,000 a year -- the very people who have the hardest time saving. In fact, 38 percent of people earning less than $25,000 a year think the lottery is the most practical way they'll accumulate a few hundred thousand dollars in their lifetimes, according to the Consumer Federation of America.

Aside from income differentials in lottery players, it’s fun. The lottery gets the adrenaline going. There’s hope tied up in a little ticket, it could be a winner. If I win, will I scream? Faint? Walk out calmly? I actually thought about how I would react, what I would do with the money if I won, the one time I played. When I turned 18 I bought a bunch of tickets, scratched, and sadly didn’t win, so tossed them.

I thought about going to buy some lotto tickets so that I could photograph them. For the blog. You know, for research.

But instead I just googled “lottery tickets in the trash” to show you how my tickets ended up, the one time I bought tickets.

 (photo stolen from statesman.com)

Credit unions are looking to tap into that population – both people who don’t have bank/CU accounts but play the lotto, and people who are playing for fun but may benefit from putting their ticket money into savings.

Some have begun programs like the Save to Win program – you make a deposit, you’re entered into a lottery through the credit union.

More than 11,000 Michigan residents opened accounts through the contest, saving $8.6 million throughout 2009. People can open the accounts -- they're like certificates of deposit -- with as little as $25. They need to keep their money in for at least a year and can make deposits as small as $1 as often as they like.

More than half of the participants said they hadn't saved regularly before opening their accounts. About 60 percent admitted they played the lottery during the past six months. And 44 percent earned less than $40,000.

Basically people make a small deposit into a CD, and rather than receiving the full interest rate, a small portion of the interest rate for the value of the CD is pooled into a lottery, and winners are randomly chosen to receive the cash.

Wow, that’s kind of awesome. It may encourage people to save, and they may get the same little thrill by saving that they do by playing – but in the worst case scenario savers will at least have their “ticket money” after playing. It’s like they played and didn’t win, and got their money back!

Great idea, right??

But will people really get that thrill of gambling, the hope of chance, when making a deposit? There isn’t an instant payoff, but it seemed to be working in Michigan.

But then I started thinking about states that use their lotteries to fund public programs, like education. It’s fantastic if people are saving, and it will benefit families more than the lottery probably will, but if people really make the switch to saving, it could actually be taking money away from these state programs. And living in a state with ongoing budget shortfalls, and having lived the life of a family of state employment, any more money being lost in the state budget is scary.

And do we want to teach kids to save money because it may make us rich by winning? Or to save money because it’s necessary and ensures (well, encourages?) our capacity to live free of debt?

Although it’s not sexy, and although I’m never going to hit big money, I’m going to continue to save.

But I can’t say that if a credit union near me was running a program like this that I wouldn’t take advantage of it. I guess I would have to figure out what kind of interest I would be giving up to be participating in a statistically slim chance at making more.

Maybe deposit slips could be sexy…

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