The Save to Win programme in Michigan and beyond

The initiative

The Save to Win (STW) programme was created in Michigan in 2009. Its purpose was to test the viability of prize-linked savings (PLS) as a novel approach to saving. It was created under Section 411 of the Credit Union Act, credit unions being able to offer programmes such as STW that would otherwise be prohibited. It was designed as a 12-month share certificate that allows for unlimited deposits throughout the year. Each deposit is counted as an entry in the monthly prize draw.

The success of the Michigan initiative has caused STW to be rolled out across nine states in total.

The challenge

About a fifth of US households, or 51 million adults, have insufficient savings. And in the years following the 2007-08 financial crisis, many families were forced to take money out of their pensions and nest eggs.

In the past, public awareness campaigns to promote the creation and maintenance of savings accounts have had limited success, largely because they relied on simply rehearsing the virtues of having a savings account. But some savings programmes, such as the UK's premium bonds, have had greater success because they used incentives to encourage savers, such as cash prizes, raffles and lottery-like prizes.

The public impact

Since its inception in 2009, over 50,000 STW accounts have been opened in numerous credit unions across nine states, including Indiana and Connecticut. These states have modified their banking laws to allow credit unions to offer such programmes.

As of 2015, 15 states had passed legislation opening up a market of 78 million people for these products. Over US$115 million had been invested in STW accounts.

Doorways to Dreams (D2D) summarised its impact in 2014 as follows:

“78-91%: Percent of account holders who were financially vulnerable. [1]

“88-99%: Rates at which accounts rolled over.

“$1,142-$3,011: Average year-end account balance.

“3,233: Total number of winners.

“16,063: Total number of account holders in 2014.

“$300,000: Total dollar amount of prizes awarded in 2014.”

Stakeholder engagement

The main stakeholders were the individual state governments, the credit unions, the not-for-profits, and the individual savers. So, in the state of Michigan, the Michigan Credit Union League (MCUL), the not-for-profits, the Filene Research Institute and D2D were the main stakeholders. “They began working in 2008 to launch a large-scale, prize-linked savings product in the state of Michigan ... [whose] law already allowed for credit unions to offer them. So, D2D, MCUL and the Filene Research Institute began designing [STW], the first large scale test of a [PLS] programme in the United States.” 

It has increased the number of citizen stakeholders. “‘Most of the things we do in the legislature are so abstract, and it's hard to see the benefits,'” said Nebraska state Senator Amanda McGill, a Democrat. “But this really gets people happy and engaged, and they are saving.'” [2]

Political commitment

The STW programme has been endorsed by 15 other states and also secured support from both major political parties in the country. As of the autumn of 2015, 15 states had passed legislation opening up the market to PLS products. “In Congress, bills to modify federal banking laws and permit more financial institutions to offer prize-linked accounts have Republican and Democratic co-sponsors.” [3]

Public confidence

Since 2009, the STW programme has caused the creation of over 50,000 accounts, with individuals saving over US$100 million. It has a positive effect on those individuals that have won prizes, and has enabled them to open an account with modest starting amounts. ‘“I didn’t have $500 to start a [Certificate of Deposit], and when they said it was only $25, I knew I could do that,’ said Cindi Campbell. ‘I got addicted when I won $100, and I was thrilled to death.’ She made those remarks when she was awarded the $30,000 grand prize at North Carolina’s Telco Community Credit Union in February.” [4] Senator McGill’s comment applies here, too (see Stakeholder engagement above).

Clarity of objectives

STW’s objectives were to stimulate saving among those who had tended not to build up any significant deposits of money. The incentive that they offered was a prize draw for their account holders. In setting up this particular programme, the creators of STW wanted to build awareness of the product, generate interest and inquiries and get credit union members, and non-members, to sign up for the product.

Strength of evidence

Before STW was designed, the stakeholders looked into successful models prevalent in the country and abroad. In the US, Indiana's Central Credit Union first piloted a PLS programme and enrolled more than 1,000 new accounts, accruing more than US$500,000 in deposits in the first five months.

Based on the success of Indiana's pilot, Doorways to Dreams (D2D) co-created - with MCUL and the Filene Research Institute - the STW programme in in Michigan which serves as the current model for PLS in the US.

Feasibility

Before the STW programme was launched, the main stakeholders examined various models and then arrived at the PLS incentive programme. An alternative legal structure, the sweepstake, was considered. It was rejected, however, because credit unions were unenthusiastic about an approach under which non-members could participate in the programme without having to deposit any savings.

Management

There is a great deal of management experience in all the stakeholders, in the management of credit unions and of PLS. For example, the board of Doorway to Dreams includes senior figures from law firms and finance houses. There are also a number of senior academics with backgrounds in law, investment and management:

• Howell Jackson, James S. Reid, Jr. Professor of Law, Harvard Law School
• Brigitte Madrian, Aetna Professor of Public Policy and Corporate Management, Harvard Kennedy School
• Peter Tufano, Founder and Chairman, D2D Fund, Dean and Professor of Finance, Saïd Business School, Oxford University.

Measurement

The STW programme is measured on the basis of a number of fixed parameters, including:

• Account reopening rates - STW “continues to show notably high percentages of accounts that are reopening from one year to the next with a rollover rate of 88%-99%. Together, these statistics are encouraging, and suggest that the product has not only been sticky over time, but has continued to be a helpful financial product across separate and diverse communities”. [5]
• Total corpus of saving - over US$1.15 million.
• Total number of accounts - over 50,000.

Alignment

There is clear cooperation between the main stakeholders in STW, in that they collaborated to create a successful product, first in Michigan and then rolled out across the country.

There was also cooperation between the two main political parties and between Congress and the main stakeholders in modifying credit union law to allow for PLS programmes.

Bibliography

What is Prize-Linked Savings? Save to Win

SAVE TO WIN IMPACT: 2014 OVERVIEW, D2D Fund

Using Gambling to Entice Low-Income Families to Save, PATRICIA COHEN, 30 August 2014, The New York Times

Mission, Filene Research Institute

Overview, D2D Fund