On June 14, Minnesota Governor Mark Dayton signed a prize-linked savings (PLS) bill into law. PLS programs have been successful throughout the world and in a few American states in encouraging people to save money, but until recently federal legislation has prohibited most states from promoting the programs. Passage of new federal legislation in December 2014 cleared the way for states to approve PLS accounts for all banking institutions. Minnesota is now one of 14 states where opening a PLS account will be possible for consumers.
The bill hasn’t garnered much attention in the media, but the consequences of its passage could be significant for Minnesota citizens who have had difficulty saving money. PLS accounts combine the fun of prize drawings with the financial advantage of building savings. Here’s how PLS accounts work: People open a savings account that allows the chance to win prizes by making deposits; typically, small drawings are held every month and bigger drawings are held less frequently (maybe once or twice a year).
PLS addresses two related American phenomena at once: wanting to strike it rich and finding it hard to save money. According to CNN Money, Americans spent more than $70 billion in lottery tickets last year. That amount is more than was spent on sporting events, music, movies, video games, and books combined. At the same time, the average U.S. personal savings rate is about 5.5 percent; however, Americans under 35 have a negative savings rate. Moreover, the 40 percent of Americans who make up the lowest income earners have an average savings rate of 0.12 percent. Additionally, nearly half of all U.S. households are “liquid asset poor,” meaning they have less than a three-month cushion of savings.
PLS accounts have proven quite successful at motivating financially vulnerable individuals to open and regularly contribute to savings accounts. For instance, in 2013, average PLS account balances ranged from $921-$2,662. Since the product was first offered in 2009, 50,000 account holders have collectively saved $94 million.
Michigan has offered PLS accounts in their credit unions since 2009 and, so far, PLS account holders have saved more than $28 million. Here’s what one Michigan accountholder said about her PLS account:
“If it wasn’t for (the PLS account), I wouldn’t have direct deposit. Now I have it and I like it. I started with $25 in my account. Now, I put in $100 every two weeks. Before this I had zero savings.”The Minnesota Credit Union Network is working with the Massachusetts-based non-profit Doorways 2 Dreams and Pew Charitable Trusts to create a new kind of PLS product for Minnesotans with the goal of rollout on October 1, 2015. Look for press releases and marketing information in the near future.