Is ‘Prized-linked Savings’ Just Another Lottery?

What if you could play the lottery and not lose any money? — You might not win, but you were guaranteed not to lose what you put in. Would that still be against LDS Church teachings? Would you vote against it in a referendum?

Believe it or not, this scenario is possible, according to Stephen Dubner, one of the authors of Freakanomics, in his appearance last night on the NPR program Marketplace. Dubner tells about a system called “Prize-linked Savings” under which participants put money in a savings account in a bank. Their investment is protected, but earns lower than normal interest. The additional interest the account would have made is put into a “lottery” fund that is “won” by one of the participants from time to time.

This idea certainly has much going for it. If nothing else, it encourages savings, perhaps even among a part of the population that otherwise isn’t very likely to save. And, to the extent that it draws money away from traditional lotteries, surely it is better, right?

This system is already in place in some 20 countries and in the state of Michigan, at credit unions in the state. But in the other 49 states in the United States, it is currently illegal, often because the state is the only entity permitted to run lotteries.

But despite the advantages of this idea, I have doubts about whether or not active Latter-day Saints should participate. If I recall correctly, the advice to not participate in lotteries is based not only on the fact that the odds are against you, but also on the fact that they motivate participants by offering something for nothing. Participants are encouraged to believe that they can get something for nothing.

While the odds are perhaps not so bad in “Prize-linked Savings” or “No-lose Lotteries” as Dubner calls them, they are really just a savings account linked to a lottery — you pay for your lottery tickets by giving up some interest on your savings.

On the other hand, as Dubner observes, this is essentially a marketing gimmick for savings accounts. And in that sense, is it really different from many other marketing gimmicks — those come-ons where if you buy widget x, you get a chance to win prize y (which is sometimes even several thousand dollars).

Assuming the amounts that could be won are similar to lotteries instead of marketing gimmicks, I’d have to come down on the side of considering these accounts ill-advised, especially given the evidence that winning the lottery can be so destructive.

BUT, whether a state government should permit these accounts might be a different question. In part, it comes down to when to permit immorality in the law. Ideally, it is best to do this when the result will reduce immorality — such as permitting alcohol use to avoid the violence and criminality that developed when it was prohibited in the 1920s.

My guess is that permitting this could actually reduce participation in traditional lotteries and encourage participants to save. And on that basis, I think I’d support making this program available.

But I do think its just another lottery.

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23 comments for “Is ‘Prized-linked Savings’ Just Another Lottery?

  1. Craig
    November 17, 2010 at 8:13 am

    I see a number of problems with this scheme that Dubner glossed over. First, interest rates on savings accounts ad CD’s are now near zero. I think my primary savings account at my credit union is at 0.03%APR. It would take a HUGE number of participants to make eve the entire interest amount become a tangible incentive to savings, PowerBall this ain’t! So in order to make the prizes more entice, the capital deposited will have to be invested in more risky alternatives, that means people are essentially investing in a managed mutual fund that randomly pays one shareholder all the profits (that is the extreme example). The additional risk required to achieve useable gains on the capital means that the capital could disappear.

  2. Bryan in VA
    November 17, 2010 at 9:41 am

    It is trying to get something for nothing.

    D&C 38:26 For what man among you having ten thousand depositors, and is no respecter of them, and they save their money patiently, and he saith unto the one: Be thou an earner of 1% interest; and to the other: Be thou an earner of 50% interest—and looketh upon his depositors and saith I am just?

  3. Craig H.
    November 17, 2010 at 9:58 am

    It sounds safer than the stock market, actually. Which is played by all sorts of respectable churchgoing people.

  4. Michael
    November 17, 2010 at 10:08 am

    I see little difference between this and the way that we expect stocks or real estate investments to appreciate in value when we have done little to earn such appreciation. Since church members have no hesitation whatsoever about gaining from appreciation in their homes (but, of course, scream like banshees when they lose money on them) even though they do nothing to warrant such winning, I can’t fathom that they would have a problem with a savings account like this.

    But then again, the schizophrenia and inconsistency in logic exhibited by my fellow members never ceases to amaze me.

  5. November 17, 2010 at 10:16 am

    Craig (1), what you describe is in part temporary — the economy will improve and interest rates will increase.

    But, overall you are correct. The idea is based on very slim contributions to the lottery in comparison to the overall amount each participant contributes. It is certainly not “a dollar and a dream.”

    Bryan (2), yes it is. But, given that fact, isn’t it an improvement on the traditional lottery?

    Craig H. (3) – Exactly.

  6. November 17, 2010 at 10:22 am

    So, Michael (4), dos that mean Church policy on lotteries is also nonsensical?

  7. Julie M. Smith
    November 17, 2010 at 10:33 am

    Where’s the line? If I’m checking out in a department store and the cashier offers me a little scratch-off card worth 10, 20 or 30% off of my purchase, can I use it in good conscience knowing that other shoppers are paying more to furnish my 30% and I did nothing to deserve it?

  8. Michael
    November 17, 2010 at 10:44 am

    I was so close to winning Powerball last Saturday night. Only off by four numbers.

    Actually, section 21.1.9 states “The Church opposes gambling in any form, including government-sponsored lotteries.” There is no further elaboration or any type of repercussions listed. It is a pure and simple statement of policy.

    If the thought behind the policy is “something for nothing” (which is never articulated) then I can imagine thousands of things that would qualify for exclusion by faithful Church members. What about those 5,000 that received the loaves and fishes for free?

    The challenge of interpretation of any church policy always leads to a Pandora’s box of other conundrums. While the original policy may not be nonsensical, fixation on its literal interpretation without understanding the gospel principle behind it will lead to weak faith and an uneducated disciple.

  9. Mathew
    November 17, 2010 at 11:25 am

    This is a form of a rotating savings and credit association, an old means of savings that is still common in many places. I wrote about this a little a few years ago at Feminist Mormon Housewives:

  10. Bryan in VA
    November 17, 2010 at 11:32 am

    Kent – I think a society that only gambled with a portion of its interest on its saving would be much preferred to a society that gambled with its butter and egg money.

  11. Adam Greenwood
    November 17, 2010 at 1:14 pm
  12. November 17, 2010 at 1:20 pm

    Julie (7), that’s my question exactly. Where is the line?

    Michael (8), my suggestion that the Church’s position on gambling is my supposition based on past Conference talks. But you have a good point. The policy could be based on other logic. I am not positive that my logic is correct.

    Matthew (9), Good point. I’ve heard of these kinds of savings groups before. It never occurred to me that they were so similar. Although the amounts are not exactly lottery-like.

    Bryan (10), I do to. That is why I’d vote to make this legal if I had the chance. But I don’t think I’d ever do it myself.

  13. November 17, 2010 at 1:46 pm

    Adam (11), that’s great background, but a cursory read doesn’t answer all my questions. I’ll give it a more thorough read.

    I guess a lot of the question here is whether or not this is actually gambling.

  14. KLC
    November 17, 2010 at 2:06 pm

    I’ve always believed that the church really isn’t opposed to getting money for nothin’ but rather to getting chicks for free.

  15. Adam Greenwood
    November 17, 2010 at 4:19 pm


    its just a blog post, not a definitive answer to your questions. Where its helpful is in suggesting that what is “gambling” depends on your rationale for what the evil of gambling is. There is more than one type of evil that you could attribute to gambling, and some of them aren’t attributable to the stock market or life insurance or commodities trading or savings-with-a-prize.

    There is also a denominator-problem we have to worry about. The lottery isn’t technically something for nothing since the lottery isn’t free. So when we say ‘something for nothing’ we really mean that the denominator (the buck you spend to buy a ticket) is very, very small compared to the numerator (the millions you hope to get in payout). In this example, you probably get a pretty big numerator in proportion to your denominator if your denominator is just your foregone interest. But if you look at the savings plan as a whole your denominator gets bigger because you are actually having to save money in addition to foregoing interest. Maybe the answer is that this is gambling if you are a responsible person who would have saved the money anyway, but it isn’t gambling if you are the kind of grasshopper that these kinds of plans are hoping to seduce into saving money.

  16. November 17, 2010 at 4:44 pm

    15 — Yeah. That ain’t workin’.

    Kent — I think it’s a wicked and slothful generation that always seeks a policy clarification. I think the Brethren have said what they want to say about this, and it is up to the individual members to study the matter out and inquire of the Lord if they want a better understanding of what they should do with regard to these things.

    And I think this conversation is a good part of the studying-it-out phase.

    To me, a problem in gambling is the dishonesty built into the games — the idea that you will win huge prices encourages you to take the risk. I call state-run lotteries “Gullibility Tax,” and point out to folks that the rule with all gambling is that you can’t lose if you don’t play.

    As to these things, I don’t see gambling going on here. There’s no risk of loss of principle. I think that limits the matter to such low risk investments that the potential pay-offs are going to be so minimal as to not be terribly attractive. I would find it more interesting done with moderate risk investments — say high grade bonds (once the credit rating companies have rehabilitated their reputations) — where you have a little more potential for return to work with.

    But I think the idea ultimately doesn’t work out. It’s a little like trying to dissuade horny teens from having sex by encouraging them to go to Church dances and hold hands, or to avoid coffee by drinking post-um (yuck!). The people who are drawn to lotteries aren’t going to be interested in seeing a 50% annual return on their principle — they want to see thousands of percent returns. The people who are willing to accept what are very good market-level returns aren’t going to want to risk pay for someone else’s windfall with sub-market returns. There might be some folks in the middle who would find the idea attractive enough to try, but it would be in the same neighborhood of the portfolio as emerging market stocks — something fun to watch in case it goes big, rather than something you allocate much into.

  17. BTD Greg
    November 17, 2010 at 5:04 pm

    I’ll have to send this blog post to my wife today so she can read it before she heads out for Bunko night with a bunch of other housewives in our ward. I doubt she’ll be impressed.

  18. November 17, 2010 at 8:03 pm

    Blain (16), for the record, I’m not asking for a policy clarification from the Church (although I don’t know what others are looking for). This is, as you suggest, part of how I study it out in my mind.

    Since for most of those who read this post the program is illegal, its all quite theoretical anyway.

    OTOH, those in Michigan or the UK might think about whether to participate in these programs.

    The rest of us can only consider whether we should ask our legislators to make it legal.

  19. mlu
    November 17, 2010 at 8:56 pm

    Where’s the line?

    And who is my neighbor?

    Sometimes looking for the line is misunderstanding the counsel.

  20. November 18, 2010 at 3:29 am

    18 — I kinda figured. And I got the phrase wrong — it’s a wicked and idolatrous generation. My bad.

    I don’t think I know any Michiganders, but I do know some Brits, so it’ll be handy to be ready to sound smug and arrogant as I put these plans down should one of them ask me about them. It’s always good to be ready for any contingency.

  21. Tim
    November 18, 2010 at 12:20 pm

    I haven’t read the other comments, so I don’t know if this has been said yet, but PLS accounts are in no way a form of gambling. In order for an activity to be considered gambling, there has to be a possibility that you could lose the money you put into it. A PLS account does not provide that possibility. A PLS account just offers interest in a different way. Instead of giving it to the depositor on a quarterly or annual basis, it just provides everyone with a certain probability of a lot more interest. The payoffs are the same for a risk neutral agent. Anyway, that has nothing to do with my basic point, which is that a PLS account is not gambling because you can’t lose anything. I personally think this would be very helpful for individuals who love the lottery and gambling because it’s a risk free and sin free way to participate in their favorite pastime.

  22. November 18, 2010 at 9:15 pm

    For those of you who don’t know – State sponsored lotteries are a really a tax on stupid.

  23. Crick
    November 19, 2010 at 6:32 pm

    I strongly oppose gambling, including lotteries. However, I do not believe this scenario fits into the category of “gambling” and I tentatively support it (but need more information).
    1. This is not a case of getting something for nothing. One has to put in a basic amount of earned money and (I assume) it has to stay in the account for a minimum amount of time so as to help accrue interest. How is this different than any other investment short of day trading? And obviously this is less risky than many stock-exchange listed investments.
    2. Because one has to save the money, one is not going back to the bank every day to buy a new lottery “ticket”. If you are one of the 99% who never seems to “win” but also has a problem with money burning a hole in your pocket, or a gambling problem, you are not likely to keep your money sitting in such an account for a long time.
    3. This sort of arrangement rewards those who save. All get something and none lose their principal. A few get something more. It is not gambling–at least not anymore than switching money into riskier 401-K accounts.

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