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Can Gambling Increase Savings?

Evidence type: Insight i


There is evidence that a high proportion of households hold no savings buffer and so are at risk when faced with job loss, healthcare costs, or other financial shocks. Prize-linked savings (PLS) products, which provide participants the chance to win prizes by saving money, have the potential to improve this situation, by delivering the utility of lottery play while simultaneously encouraging individuals to substitute toward higher financial security. To date, PLS programs have received little academic attention and studies to this point have focused on either high-level macro data, small-scale surveys or laboratory experiments. In contrast, this study uses account-level data from a PLS program run by one of the largest banks in South Africa.

The study

The data for analysis come from First National Bank in South Africa, which introduced a PLS account, the “Million-a-Month Account,” (MaMa) in January 2005 in an effort to expand its deposit base. There were three datasets: branch-level data for all bank branches, anonymized account-level data for all 38,256 bank employees, and anonymized account-level data for all prize winners.

In addition, as bank employees are not a representative sample, the study draws on data from the 3,885 respondents to the 2005 FinScope Survey, a nationally representative survey carried out annually by FinMark Trust, designed to measure the use of financial products by consumers in South Africa.

The analysis relates survey data to demand for MaMa at individual branches by calculating the average response of individuals who live near each branch. The authors also correlate FinScope’s Financial Segmentation Model with demand for MaMa.

Key findings

The authors found that PLS is attractive to a broad group of individuals, across all age, race, and income levels. Financially constrained individuals and those with no existing deposit accounts are particularly likely to open a PLS account. Participants in the PLS program increase their total savings on average by 1% of annual income, a 38% increase from the mean level of savings. Deposits in PLS do not appear to cannibalize same-bank savings in standard savings products, on average. Instead, PLS serves as a substitute for lottery gambling. There is also evidence that prize winners increase their investment in PLS, sometimes by more than the amount of the prize won, and that large prizes generate a local “buzz” that leads to an 11.6% increase in demand for PLS at a winning branch.

Points to consider

  • Methodological strengths/weaknesses: The authors state that by using account-level data, the study achieves finer estimates of the effects of PLS. However, as the staff of the bank is not a representative sample of the South African population, this subsample may limit external validity. For example, only 41% of bank employees are black as compared to 73% in the population at large. Of more particular concern is the fact that bank employees are likely better educated and earn more than the population in general.
    • Another potential limitation of the staff dataset is that it doesn’t include savings held elsewhere. However, based on FinScope Survey data (described below), the authors estimate that only 3.3% of South Africans have accounts at multiple banks.
  • Generalisability/ transferability: The data is specific to a particular savings account in South Africa. However the top level findings – that PLS accounts are attractive and can increase savings – are likely to hold true in other markets.
  • Relevance: The data comes from an account that was closed in 2008, and from survey data from 2005; the findings come from before the global financial crisis, and the Covid-19 pandemic, so may not be as relevant to today’s markets. However, the high percentage of households without savings is a problem that persists today, and the motivations around saving and winning are likely to hold true.
    • The authors state that the findings will be of interest to academic researchers seeking to understand saving and gambling behaviour, as well as policy makers and practitioners who are considering alternative policies geared toward increasing savings.

Key info

Client group
Year of publication
South Africa
Contact information

Shawn Cole; [Ben Iverson]: (b-iverson@kellogg.northwestern.edu); [Peter Tufano]: (peter.tufano@sbs.ox.ac.uk)