People are more willing to save money when offered the chance to win a prize through their savings acount, says a study.
The researchers examined the possibility of using lotteries to induce savings behaviour.
"When we made these future payments risky, people were actually more willing to save for the future," Hyndman," said Kyle Hyndman, associate professor of finance and managerial economics at The University of Texas at Dallas in the US.
The researchers conducted a controlled experiment with 96 college students to compare the success of a Prize Linked Savings (PLS) account to that of a standard interest bearing account.
A PLS savings account adds a randomly determined element to an otherwise standard savings account.
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The idea behind PLS products is to leverage the appeal of gambling to entice people to invest in savings products that offer a positive expected return.
Instead of receiving a typical fixed-interest rate, depositors periodically receive a chance to win a specified, and potentially large, prize in accordance with their deposit amounts - that is larger deposits means a higher chance of winning.
The researcehrs found participants were more likely to save money when they were offered the possibility of winning large cash prizes, instead of smaller fixed-interest rates.
The appeal of the PLS product appears to be greatest among men, self-reported lottery players and those who reported relatively low amounts in their existing bank accounts, the study said.
The study was published in the Journal of Public Economics.
