Prize-Linked Savings and Financially Vulnerable Americans

• Context
• The study
• Key findings
• Points to consider

Context

Prize-linked savings (PLS) products, such as Premium Bonds in the UK, are extensively used around the world and hold great promise as a tool for improving savings outcomes for financially vulnerable Americans. At the time of the study, they were not widely available in the US, however a PLS product had been successfully piloted by credit unions in Michigan, and the idea had begun to spread nationally. This study was timely in that it sought to further the possibility of these products by understanding the appetite for PLS in general, as well as gathering insight into consumer preferences related to product features and marketing.

The study

The study aims to understand the key factors that low- and middle-income (LMI) consumers use to evaluate prize-linked savings products. In addition, it looks at specific financially vulnerable subgroups: asset poor; un- or under-banked; ethnic minority; and single mothers.

The study was commissioned by the Doorways to Dreams Fund (now Commonwealth), a US national non-profit building financial security and opportunity for financially vulnerable people. It comprised an online survey with 1,332 members of financially vulnerable households sourced from a nationally representative online research panel. The survey respondents were in five states: Michigan, Washington, North Carolina, New Mexico, and Mississippi.

The survey was conducted by Knowledge Networks, now part of Ipsos, a global research company.

Key findings

Key findings include the following:

• Winning a prize is important. Financially vulnerable respondents prefer having a good chance to win, more prizes and prize-winners, and instant prize winning features.
• Activity-based rewards. Beyond accruing savings, financially vulnerable panellists are interested in prizes linked to behaviours that reward demonstrated improvements in financial capability, like making a regular deposit or signing up for direct deposit linked to the PLS account.
• Interest: Offering interest on a PLS savings account greatly increases product popularity across financially vulnerable respondents.
• Providers: Consumers are open to PLS products offered outside of mainstream financial institutions.
• Overall, the authors conclude that a prize-linked savings product that includes interest and prize entries based on deposits has high potential to attract LMI households and help them build savings. This potential holds across the subgroups explored, although different preferences do exist for specific product features.

They go on to make a number of recommendations around the design and marketing of potential PLS products; they conclude that by increasingly emphasising chances to win, by striking a balance such that grand prizes are awarded to multiple winners but are also large enough to be ‘attention-grabbing’, and by utilising a multi-channel distribution and marketing approach, PLS products have a chance to become more widely adopted and impactful.

Points to consider

• Methodological strengths/weaknesses: The survey was conducted using a reputable panel source that randomly recruits via probability-based sampling.
  o The survey panel was inclusive in that it gave members hardware and internet access, if necessary, so that lack of access wasn’t a barrier.
• Generalisability/ transferability: The study is specific to the US market, although consumer preferences and attitudes towards winning and saving may be transferrable to other countries.
  • This study is most applicable to savings product providers and those working with low and middle income households in the US. However anyone with an interest in encouraging saving will find the parts of the report around consumer preferences and attitudes towards winning and saving relevant.
• Relevance: As this study was conducted in 2011, it is likely that the market and regulatory situation in the US for PLS has moved on. However some of the consumer preferences and attitudes towards winning and saving may still be relevant.