More lottery tickets than milk and no money in the bank

Abstract

A significant proportion of US households have insufficient savings to cope with even moderate consumption shocks that can result in substantial externalities. At the same time, the most financially fragile households have the highest level of lottery expenditure as a proportion of income. A product which exploits the demand for lottery tickets, a prize-linked savings account, could ‘nudge’ at-risk households to save more. Prize-linked savings accounts offer individuals a savings product with principal-security and the chance to win a lottery-type jackpot. Using an online experiment, this thesis finds that the introduction of prize-linked savings accounts significantly increases the total level of savings, and reduces lottery expenditures and current consumption. The results imply that the introduction of prize-linked savings is a plausible policy option to nudge savings in the right direction, and improve welfare.