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U.S. CUs Offer Ideas on Encouraging Savings, Australian News Site Reports
Monday, July 28, 2014 6:40 AM

If Australia wants to get people to save more, they should look to U.S. credit unions for ideas, an Australian news site reported Friday. Nearly a dozen U.S. states believe they’ve found a way to encourage people to save more money — and have fun doing it. And the idea costs the states nothing.

Michigan, Nebraska, North Carolina and Washington allow credit unions to offer cash prizes as an incentive to encourage people to save. Connecticut, Indiana, Maine, Maryland and Rhode Island have enacted laws clearing the way for prize-linked savings, and in New York a bill is awaiting Democratic Governor Andrew Cuomo’s signature, news.com.au reports.

Similar measures were introduced in Arkansas in 2013 and in Oregon in early 2014. However, reportedly due to concerns regarding the best infrastructure for a prize-linked savings program, the bill in Arkansas did not become law. It has reportedly been recommended for interim study to address those concerns and to determine if and how a prize-linked savings program could work in Arkansas. 

Linda Jeffery, CCUE, president and CEO of TruService Community FCU, tells the Leaguer she has mixed feelings about prize-linked savings programs. 

“I believe that the incentive would be beneficial to establish a savings for the term of the contest. However, I’m concerned that some participants might withdraw the funds after the contest period,” notes Jeffery. “Gimmicks do not teach the fundamentals of savings. We work within our community to better educate adults and children on the importance of savings.”

By opening a 12-month share certificate with as little as $US25 participants in prize-linked savings programs earn an entry into that month’s draw and become eligible for a yearly grand prize. For each $US25 added to the account (up to 10 deposits per month), a participant earns another entry. Savers are allowed to withdraw money before the end of the 12 months, but to do so they typically have to pay a $US25 fee.

Another idea to encourage people to save by offering prizes is selling lottery-style “savings tickets” at the same locations that sell traditional lottery tickets, news.com.au tells readers. The payouts for savings tickets would be less than in the traditional lottery, but savers who didn’t win a prize would keep their principal. The plan isn’t designed to raise revenue for the state, as traditional lotteries do, but rather to encourage more people to save.

Forty-three states and the District of Columbia have lotteries, reports news.com.au, but none yet offers no-lose savings tickets because of logistics problems.