Gambling is foolish, we’re told, because the house always wins. Better to get rich slowly by putting a little away every day. But boy, do we love to take our chances. The American Gaming Association said last year that according to its survey, 42 percent of U.S. adults had gambled in the previous year. Sports betting is exploding. And sales of state lotteries hit $108 billion last year, up 85 percent from 2009, according to Statista.

Benjamin Franklin, the apostle of thrift, would be horrified.

Luckily, though, gambling doesn’t have to be the enemy of saving. As long ago as the 17th century, people realized that people could be induced to save by giving them a chance, however small, of winning a big prize. Here is an excerpt from a 2010 paper on the topic:

Prize-linked savings programs have existed since at least the 1694 “Million Adventure” in the United Kingdom (Murphy 2005). Initially proposed to cope with debt from the Nine Years’ War (1689-97), the Million Adventure offered 100,000 tickets at £10 each. A small number, i.e., 2,500 of the tickets (2.5 percent), would win prizes from £10 per year to £1,000 per year for 16 years. The Million Adventure was also a saving program, in that it paid ticket holders a £1 per year until 1710, or a 6.15 percent annual return.

In 1956, the British revived the Million Adventure in the form of Premium Bonds, which pay out prizes to randomly selected investors rather than paying ordinary interest. Harold Wilson, then the shadow chancellor of the Exchequer, called Premium Bonds a “squalid raffle,” but the British people rushed to buy them. Today about one in three Britons owns Premium Bonds. Denmark, Ireland, New Zealand and Sweden offer similar investments.

It has taken longer for prize-linked savings to catch on in the United States, but it’s happening. Save to Win, a prize-linked savings program that’s offered by credit unions, is open to residents of 28 states, according to InTouch Credit Union of Plano, Texas. Some commercial banks also offer prize-linked accounts, as do several direct-to-consumer companies, including Yotta Technologies, PrizePool, Truist’s Long Game and Flourish Savings.

I’m no fan of gambling, whether run by the government or otherwise. While people of all income levels gamble, the poor and working class lose a bigger share of their incomes. Gambling tends to entice the people who can least afford it. Spending on lottery tickets “is strongly associated with measures of innumeracy, poor statistical reasoning and other proxies for behavioral bias,” as one recent study put it.

However, I’m a lot more open to gambling if it can get people to save more. You would want to see that prize-linked savings accounts pull in money that otherwise would have been spent on conventional gambling, and that they complement rather than substitute for traditional forms of saving. That was precisely the finding of a study published in the journal Management Science in 2021: Prize-linked saving “substitutes for lottery gambling but is a complement to standard savings,” the authors found.

I interviewed Adam Moelis, a co-founder and the chief executive of Yotta, a fintech company. He is a son of Ken Moelis, a wealthy investment banker. Yotta is set up as a sweepstakes rather than a lottery for legal reasons (so it’s possible to enter without having an account).

I asked Adam Moelis if prize-linked savings accounts are less than optimal for people who don’t need the prospect of prizes to get them to save. He cheerfully agreed.

“If you’re purely rational and your goal is to maximize your net worth, put it in the highest-yielding account you can find,” he said. But, he said, “The reality is, we are who we are and we have to use our biases to help us do the right thing in the long term. We’re all short-term-wired.”

Yotta used to pay an interest rate of 0.2 percent, devoting the rest of the money that would have been paid in interest to the prize pool. But Moelis said he found that people fixated on the low rate and complained about it. So in December, Yotta eliminated interest altogether and raised the prize money. “We got rid of it because we’re all about the prizes, and we wanted to lean into the differentiator,” Moelis said. “If you want a fixed rate, go elsewhere.”

Yotta also used to offer a $10 million top prize. Now the top prize (which has never been won) is $1 million. Moelis is figuring that people will be almost as attracted by the smaller top prize, and now he’s able to hand out more small prizes.

It’s all about the psychology. “I like to say that people need to mix in chocolate chip cookies with their broccoli,” Moelis said. I told him that combination sounded awful and suggested Hollandaise sauce instead of cookies. He said he liked that idea.

The Readers Write

Concerning your newsletter on inflation: I learned today that the cost, at both Chewy.com and Target.com, of the 30-pound bag of dog food my dog has been eating for years went up by $30 since I last ordered a few months ago. Dismaying doesn’t begin to describe it.

Barbara Kelly
Broomfield, Colo.

I went to the McDonald’s drive-through in Lyndonville, Vt., the other day and ordered an old standby: a McDouble, a small order of fries and a small diet Coke. The bill came to $6.49! I was in shock.

Joseph E. Tether III
West Burke, Vt.

You wrote that you still expect a recession. Like a stopped clock, recession pessimists are bound to be right sooner or later.

Dick Nichols
Peachtree City, Ga.

Quote of the Day

“For you say, ‘I am rich and affluent and have no need of anything,’ and yet do not realize that you are wretched, pitiable, poor, blind and naked.”

— Book of Revelation, 3:17

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