Saving needs to begin early
McCaskill-071307-18356- 0038
Continuing to focus on America’s $7.7 trillion retirement shortfall, I held a hearing last week on how ‘prize-linked’ savings accounts can be used to get Americans into the savings habit.
More than 50,000 Americans have saved upwards of $150 million since financial institutions started offering these special savings accounts in 2009.
Just this week, Missouri became the 21st state to allow these innovative savings accounts.
Prize-linked savings accounts introduce lottery elements to savings in order to incentivize financial security and savings. Members of a participating financial institution must open a savings account or certificate of deposit to enter into the program, and for every deposit made that meets a certain threshold, the saver earns the equivalent of a raffle ticket and becomes eligible for prizes.
Financial institutions run prize drawings on a monthly, quarterly and/or annual basis, and prizes range from $25 to several thousand dollars.
The prizes are typically funded either through a slightly lower interest rate for the account or through the institution’s marketing budget.
Most programs have limitations both on the number of raffle tickets a person can earn as well as on the removal of money from the savings account.
The days when most workers had secure pensions from having spent decades at the same company are largely gone — and we’ve got to find safe and innovative ways to encourage younger workers to start saving for retirement.
The financial and technology sectors have teamed up to present savers with new options, and we’ve got to take a look at them to ensure proper oversight and increase options for future generations.
Preliminary data indicates this is a promising policy tool to encourage savings, in particular among low-income households.
Prize-linked savings accounts could offer a cost-efficient way to promote savings, and help Americans get in the habit of putting money aside for rainy days and retirement.
Currently, the difference between what people have saved and what they need to save to live in retirement is $7.7 trillion.
The hearing explored other technological tools aimed at attracting the next generation of savers, such as mobile apps designed to encourage people to put more money aside and track their financial health in the same way they use health technology such as Fitbit to track their physical health.
