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Why You Need to Tell Your Employees (and Maybe Yourself) About Prize-Linked Savings Accounts

ByJon Shigematsu,
business.com writer
|
May 15, 2019
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> Finance
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Prize-linked savings accounts can be a great option for your employees.

Here’s a statistic about your workforce that you might not have come across: On average, half of your employees have played the lottery, and among those who play, your average employee is throwing away $600 a year on the long odds that they might hit it big.

Of course, odds are that your employees who are playing the lottery are just throwing their money down the drain. Right now, the odds of winning Powerball's jackpot are 1 in 292 million. Even the odds of winning Powerball's lowest prize – a $4 payout – are 1 in 38.2, on a $2 ticket. So, on average, you'd need to spend $76.40 to win that $4 prize.

Taken as a whole, state lotteries offer a negative return of 52 cents for every dollar spent. If one of your employees spends $600 on state lottery tickets, they're likely to end up $288 in the hole.

Not a great investment strategy, but why should you care what your employees do with their money?

Well, because research shows that financially stable employees are better employees. Studies show that financial stress decreases productivity, is associated with poor health and causes missed workdays. On the flip side, employers who care for their employees' financial health earn loyalty and can give themselves more flexibility in overall benefits packages.

Don't think your employees are experiencing financial stress? You might want to think again. A study last year found that 40% of Americans don't have enough savings to cover an unexpected $400 expense.

So, how can you help? By pointing your employees toward tools that make saving easy and can turn the money they're wasting on lottery games into a healthy emergency fund.

A new type of savings account – called prize-linked savings accounts – is designed to do just that.

How it works

The idea behind a prize-linked savings account is that the more money you deposit into your savings account, the more chances you earn to win cash prizes.

Take the recently launched Big Prize Savings account from American First Credit Union in California. Under the program, every $25 in your average balance (once you reach the $500 minimum for eligibility) earns you a shot at monthly giveaways of $1,000, quarterly giveaways of $10,000 and an annual drawing of $50,000.

The best part is that, even if none of your employees are a lucky winner, they'll still win by building their savings account balance, reducing financial stress and improving overall employee satisfaction.

Let's imagine that one of your employees is a lottery player who spends the average $600 per year on tickets. That's just under $12 per week. Now, imagine if they took that $12 every week and put it into a prize-linked savings account. After five years, they'd have over $3,100 in their savings account – instead of having donated it to your state lottery fund.

With the American First account, that employee would have also earned over 3,400 chances to win prizes of between $1,000 and $50,000. American First even has a calculator that lets you do the math on how much you think you could save and how many chances at winning you'd earn.

The history of prize-linked savings accounts

When it comes to prize-linked savings accounts, America is a bit late to the party. A study from the Harvard Business School mentioned that 20 countries beat ours to the punch – by quite a while in some cases.

The first proto-prize-linked savings account, called the Million Adventure, launched in 1694 to finance England's fight in the Nine Years' War against France. For a £10 investment, you'd get a 10-year return of 6.15%, along with chances to win prizes between £10 and £1,000 per year for the next 16 years.

Instead of financing wars against Louis XIV, more recent prize-linked savings accounts have been targeted at promoting healthy savings habits. As early as 1918, prize-linked savings accounts in countries like Sweden, the United Kingdom, Spain, New Zealand and Germany have been shown to promote savings in the citizens who need it the most.

What took the United States so long? The threat of legal trouble. In most states, it's illegal for anyone but the state itself to run anything that might be deemed a lottery.  

However, supported by research from leading institutions, laws are starting to change state by state. Now, more than 30 states specifically allow credit unions and banks to offer customers this valuable tool.

Employee eligibility

If your employees live in one of the 30-plus states that now allow prize-linked savings accounts, there might be a financial institution near you where they can start saving.

The good news for residents of other states? You have options. While most prize-linked savings accounts target local customers, a few institutions have gone the extra mile to make sure that their accounts are open to potential savers around the country. American First's Big Prize Savings is one example.

Other ways to reduce financial stress in your workforce

Beyond bumping up paychecks, there are plenty of ways that you can help make your workforce more financially stable.

There's no one-size-fits-all solution. Larger employers may benefit from a fully integrated financial wellness program that includes access to financial advisors, education and planning tools. For smaller employers, a more DIY solution might be appropriate, with recommendations for valuable products and local service providers.

No matter what route you take, the financial well-being of your workforce is an investment that will no doubt pay off in the long term.

Jon Shigematsu
Jon Shigematsu
See Jon Shigematsu's Profile
Jon Shigematsu is CEO and President of American First Credit Union. He joined in 2011 and served as its Chief Financial Officer until his appointment to CEO. He has extensive experience in finance, accounting, and business management, and is a CPA. He lives in Southern California with his wife and young daughter.
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