Pay (Yourself) to Play

A quick reference to a practice that at least in theory makes a lot of sense.  If people play the lottery on the off (really, really, really, really, really, really off) chance of striking it rich, perhaps people would be inclined to put money into savings for the chance to win prizes.  Even if they don’t win, they still have the money they put into savings.  An earlier article on the same idea can be found here.

The idea seems to be catching on.  
I’m all for helping people learn to save.  Americans don’t save very much compared to many other less affluent populations.  Programs like this make sense at a certain level.  But they leave questions unanswered as well.
First off, the prizes are paid for by taking a percentage of the interest that would be paid on the savings deposits and, instead of paying it to the savers, pays for the prizes with it.  While that initially seems like a sketchy thing – particularly when financial institutions are paying only the tiniest of fractions of interest on savings of any kind – it may not be too bad.  
In the several initial runs of prize linked savings programs in the US, the average amount of money placed in savings deposits was around $750.  This amount nearly doubled when the number of participating financial institutions tripled.  
Still, even on savings of $1600, the interest that would be paid on it is negligible – painfully laughable, actually.  Which means that to fund this sort of program, larger savers – people who have tens of thousands of dollars or more in savings – will be the ones who pay the majority portion of the cost of prizes.  And this is without the possibility of financial institutions utilizing advertising promotions in exchange for free donations of prizes from merchandisers and manufacturers.
A larger concern I have is that people who save more money are more likely to win prizes.  If participants receive an ‘entry’ or ‘ticket’ for the raffle for every $25 they deposit, it seems as though people with more liquid assets could simply troll around, setting up automatic deposits for $25 every day – or every hour! – and skew the odds considerably in their favor.  The less well-off participant who can only contribute $25 a week or a month has smaller odds of winning.
I suppose this is true in ‘real’ lotteries as well, but it would seem that the statistical odds of picking six or more exact numbers negates the advantage of more attempts.  In other words, if the odds against picking the exact right numbers are millions and millions to one, the fact that I make 100 attempts at it rather than just one probably doesn’t affect my odds all that much.
Still, even if you don’t win the prize, you have the money you’ve deposited into savings, and that’s much better than playing the lottery.  And if the amount of interest you sacrifice is negligible, it isn’t really costing you anything at all for the chance to win.  You’re effectively changing your savings habits at no cost (other than cash flow) with a slight chance of winning a nice prize.  Seems like a win-win.  Would you pay to play?

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