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Prize-linked savings products: An innovative tool for increasing savings among lowincome households?

Author:

Julia Kowalski

London School of Economics and Political Science, GB
About Julia
MPA Class of 2014
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Abstract

This article explores the use of lottery elements to encourage saving among low-income households, through the introduction of prize-linked savings (PLS) products. It demonstrates that preferences for lottery elements in savings, and thus the appeal of PLS products, can be motivated using elements of cumulative prospect theory. Further, it reviews existing anecdotal evidence on the effectiveness of prize-linked savings. Based on experiments conducted by previous authors, the article discusses the potential welfare effects stemming from the introduction of prize-linked savings products. It tentatively suggests that positive welfare effects may be incurred in response to offering PLS products, through an increase in the level of total savings and positive externalities arising from increased formal banking. The paper identifies the establishment of systematic evidence on the effectiveness of PLS products, proposing a randomised design to this aim, as well as a revision of the current regulatory environment as next steps in view of policy implementation.

How to Cite: Kowalski, J., 2015. Prize-linked savings products: An innovative tool for increasing savings among lowincome households?. The Public Sphere: Journal of Public Policy, 3(2), pp.131–149.
Published on 01 Jul 2015.
Peer Reviewed

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