Evidence type: Insight i
Qualitative research is more exploratory, and uses a range of methods like interviews, focus groups and observation to gain a deeper understanding about specific issues - such as people’s experiences, behaviours and attitudes.
Quantitative research uses statistical or numerical analysis of survey data to answer questions about how much, how many, how often or to what extent particular characteristics are seen in a population. It is often used to look at changes over time and can identify relationships between characteristics like people’s attitudes and behaviours.
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 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.
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.