Lindsay and I have been getting the same sort of question from our users, investors and imaginary friends lately. It goes something like this: ‘Where did you come up with this idea of combining a boring old saving account with a high-stakes lottery jackpot?’ It’s a good question because the answer is… we didn’t. Sorry. The actual credit for prize linked savings accounts goes to the genius and trendsetting… 17th Century. Yes, you read that right: The first PLSA actually dates back 300 hundred years to England. So, while we’re putting a modern spin on this product, these are some truly old school saving moves! But before we tell you why PLSA are primed for a big comeback, how about some fun PLSA history!
Saving History: PLSA have been used for hundreds of years in many countries around the world. Here’s some of the key bits you might like to know:
- The Million Adventure: In 1695, the English government needed to raise funds for their war against, who else, the French. In order to do that, it used the “Million Adventure” lottery in which the government sold 100,000 tickets for £10 each (hence the “million adventure” name). Each ticket afforded a person a chance to win one of around 2,500 generous prizes, with the most generous prize being £1,000 per year for 16 years. But this lottery was different. Unlike modern lotteries, the people who did NOT win still received a reasonable return on their investment; £1 per year until 1710. In other words, even the losers got their money back and actually earned £5 over the time period. The program was a big hit. Even people that couldn’t afford to participate pooled their savings into syndicates in order to be able to afford the entry price. As a result of this success, the Million Adventure led many other governments around the world to use these forms of ‘prize bonds’.
- Modern Incarnations: The UK government still uses prize bonds to encourage saving today, and Belgium, France, Ireland, Pakistan, Sweden, and New Zealand have also done the same. Beyond governments, private banks have also gotten into the PLS game. For example, throughout Latin America and the Middle East, PLS accounts have been common. In all these cases, the PLS mechanism has proven to be very effective at helping people save money. In fact, it’s been so good at redirecting the money people waste on predatory state lotteries that these lotteries have sought to shut down some PLS programs, demonstrating how misaligned some lottery systems truly are with people’s generic welfare.
- Million-a-Month Accounts: South Africa’s experience with PLS is an example of a misaligned state lottery system shutting down a successful PLS program. The First National Bank, which was the country’s third largest bank, introduced PLSAs in 2005 to expand its deposit base. Over just a couple of years, the PLS program – called the “Million-a-Month Account,” or MaMa – exploded. Within 18 months, there were more PLS accounts at the bank than traditional accounts. In fact, by the time this program was closed down, it accounted for over 7% of all savings accounts in the country. And, better still, the research showed quite clearly that this new personal saving was not cannibalizing other savings accounts but was instead directly linked to a reduction in people’s lottery-spending (i.e., it was converting bad choices into good choices). Unfortunately, the Lottery in South Africa sued the bank to stop providing these lotteries. And, sadly, it won. The MaMa accounts are no more.
Past is Prelude: So, with all this great history, you might be wondering, why is this kind of saving product only now ready for mainstream America? Again, good question. We have three quick answers to this:
- New PLS Legislation: By far the most important factor explaining why now has been the passing of the American Savings and Promotion Act of 2014, which legalized PLS in America. This ended any remaining questions as to the legality of this saving product and neutered the ability of misaligned state lotteries to stop PLS programs (see MaMa above).
- New Mobile Technologies: Most attempts at PLS products were based on slight tweaks to existing savings products. This helped to create some popularity, but we believe they failed to capture the real imagination of the public and indeed fulfill the true promise of the product. As you’ll see with the Long Game app, we take the fun and the prizes as seriously as the saving, which we believe will entice a greater cohort of people to participate.
- New Financial Technologies: Until recently, it was very difficult to build the kind of product we have built, as the the fintech technologies simply didn’t exist to do what we’re doing. The fintech revolution over the past five years has really allowed us to do this on a massive scale.
In sum, PLSA has been around for a long, long time. And right from the beginning, it has been very successful at helping people save money. At Long Game, we’re simply taking a product that has proven successful for hundreds of years and adding a very modern spin on it.