An Intro to Prize-Linked Saving

It’s a feeling many of us know well: you’re buying a lottery ticket and on your way out of the store, you can’t help but get excited imagining what you’ll do if (or when, fingers crossed) you win the grand prize. Some might dream of taking a luxurious trip around the world, while others might first think of an expensive car or a new home instead. It’s a powerful mental image, and even though the odds of winning are far from in your favour, you still feel like you’ll take that chance if it only costs you a couple dollars.

It’s this exact feeling that propels lottery industries around the world to such great success. The Canadian lottery is massive, bringing in over $7 billion a year. Ontario generated the most lottery sales in 2019 to a total of $4.2 billion, with 57% of adult Ontarians saying they’ve bought a ticket in the last twelve months. The lottery appeals to many demographics, though some more than others, as it’s estimated that Canadian men gamble 20% more frequently than women. People in their 20’s and 30’s are playing the lottery most often, as roughly 70% of Canadians in this age group are playing the lottery several times a year.

To be fair, it is entirely possible that any person could win a massive fortune through the lottery and gain an amount of wealth that would otherwise be impossible for them to earn in a lifetime. However, all forms of gambling, whether that be purchasing lottery products, visiting a casino, playing online gambling games and so on, require that you give up some of your hard-earned income to participate. Then, in sharp contrast to the massive size of lottery jackpots, the odds of actually winning one is extremely small; to be specific, that’s 1 in 14 million for Lotto 6/49, and 1 in 28.6 million for Lotto Max.

So, even though you could win millions with a couple bucks, you probably won’t. As such, it should be evident that playing the lottery regularly just doesn’t make sense financially. Buying a ticket on a whim occasionally isn’t a problem, but like all other small expenses, making it regular adds up quick; a great comparative example is coffee. Buying a nice latte or a lottery ticket (which are roughly equivalent in price) doesn’t feel like much at the time, but if you’re purchasing a few of either a week, the total amount you’re spending will snowball to become hundreds over time. However, considering that the odds are so stacked against you when you buy a lottery ticket, one could easily make a case that if you were going to spend that money, something like coffee would be more valuable - at least you get some kind of return (energy, comfort, taste) from coffee, while a losing lottery ticket does nothing for you.

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But, what if you could still be entered in a draw to win a major cash prize, but instead of having to pay to participate, you saved money? If you’re already a QUBER user, you’ve likely picked up on the fact that there is, in fact, an opposing end of the spectrum from lottery products. That is, instead of paying to play for a massive prize, like with lottery products and gambling, you can actually use your savings to earn chances to win cash prizes. Within QUBER, we offer our users that opportunity through our Save to Win contests, but the concept of prize-linked saving exists all around the world.

A prize-linked saving account (PLSA) is a saving product that enables customers to enter into draws to win cash prizes on the basis of their deposits. The draw contest for account holders may be operated a number of different ways, such as a ballot system that awards customers entries based on the amount of cash deposits they make (like we use for Save to Win) or by using the interest earned on one’s deposits to gamble. (Please Note: QUBER does not gamble using interest earned on deposits in The Vault. Deposits in The Vault do not earn interest!) A PLSA operates relying on the same behavioural concepts that drive the success of traditional lotteries, only instead of encouraging a negative behaviour, it encourages a positive behaviour. That is, instead of spending your money on a slim chance of winning, like you do with a scratch card, you could instead save money in a PLSA and earn that chance. Your odds of winning the prize are similar whichever option you pick, but with the PLSA, you eliminate your risk entirely as you keep your savings despite the outcome.

Around the world, PLSA’s are used to encourage regular saving for people who live on low incomes. In general, most savings accounts around the world don’t offer more than 1.5% (sometimes 2%+) interest on deposits. Though this will generate a small amount of interest earnings, it doesn’t provide a great incentive for people who live on lower incomes to keep their money saved. However, working towards accumulating a steady amount of savings is one of the most important steps a person can take to ensure their financial stability, particularly if they do live on a lower income. With a PLSA, a person is offered the same chance to win large cash prizes that a lottery would give them. But, because the account holder’s chances are based on their savings and not on money they’ve spent, it eliminates the unnecessary drain on their resources that regular lottery spending otherwise creates.

However, really, people at any income level should be able to see the benefits of saving in a PLSA. While it’s true that a PLSA won’t offer you guaranteed interest like a traditional savings account would, consider the opportunity created by holding a PLSA. On one hand, you could earn a guaranteed amount of interest in a standard savings account, likely totalling a few dollars a year, or you could forego that interest and take the chance of potentially winning a much larger prize when you save in a PLSA. Though it all comes down to personal preference, it should be no surprise that most people are willing to take the chance offered by the PLSA. Saving in a PLSA offers the same feeling of excitement created by the lottery, but doesn’t cost you any money to participate!

Though there’s historical evidence of prize-linked saving going back to the UK in 1694 (they were used to encourage repayment of military debt), they were first officially implemented in South Africa. There are a number of other countries around the world, such as Argentina, Brazil, Colombia, Iran, Japan and Sri Lanka that all have financial institutions that offer PLSA’s. In fact, PLSA’s are the most widely-held type of savings account in Iran as they comply with Islamic Law, which states that it’s illegal to earn guaranteed interest on assets (the chance nature of winning a prize through a PLSA is not guaranteed, so it is permitted). PLSA’s are currently available in around 20 states across the U.S., but are not yet offered nationwide.

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Here in Canada, PLSA’s are not yet officially offered by any major financial institutions. However, as a QUBER user, you can think of your QUBER account as your PLSA! Save to Win offers all QUBER users the chance to earn cash prizes with the savings they deposit in The Vault; the more you save, the more chances you earn to win an extra boost towards your financial goals! We’re giving away $100 a week in 2021, and have one $1000 grand prize to give away at the end of each quarter (the first one will be given away at the end of March). If you’re interested in seeing our 2021 Save to Win contest rules and schedule, click here.

Prize-linked saving has been referred to by some as “the future of banking”. When PLSA’s were introduced in South Africa, the South African lottery industry took the banks to court over it, which forced those that were offering the accounts to cancel their programs at the time. The lottery industry saw it as an infringement upon their rights, as PLSA’s were pulling people away from their business. This is a trend seen in other countries where PLSA’s have been introduced, including the United States. However, that initial cancellation in South Africa is ultimately what made the case for prize-linked saving in the end. After the first South African PLSA’s were closed, banks could see that people who had held PLSA’s weren’t taking out their extra cash and spending it as they would have in the past; they simply moved what savings they’d accrued over to a traditional savings account. In this way, PLSA’s had actually changed their attitudes towards saving money, allowing them to see the value, security and peace of mind created by continuing to save diligently.

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