Forget Powerball. Consider This New Lottery-Style Savings Account

The Prize-Linked Savings program taps into the urge to buy lottery tickets, yet encourages people to save.

At the risk of being a party pooper, you didn't win the big Powerball jackpot, did you? Intellectually, you knew that buying those lottery tickets was akin to setting an Andrew Jackson on fire, but still you couldn't help yourself. You probably said something like, "Hey, somebody has to win, don't they?"

Yep, somebody won and it wasn't you. And while maybe you personally can afford to burn money playing the lottery, many -- many -- older people cannot and yet do it anyway.

Repeat after me: Buying lottery tickets is not a retirement planning strategy. But it could be. Enter the Prize-Linked Savings account.

PLS accounts are like standard bank accounts, but don't pay interest to the account-holder. Instead, the interest is pooled across PLS accounts and paid out as raffle prizes to savers. The upside is that savers' principal isn't touched and they don't run the risk of losing everything. Plus it scratches that itch that leads people to waste money on the lottery. While savers still have the same remote chance to win a pot of gold, the real prize is that they are able to build up some modest amount of savings that could mean the real difference between being able to survive their retirement years or not. 

The Save to Win PLS that launched in Michigan in 2009 now has more than 15,000 accounts and operates in four states, according to its website. About 75 percent of those enrolled have less than $5,000 in personal assets and earn $40,000 or less in annual income. Few had been regular savers before the program. A year after it launched, it wrote its first $100,000 winning check. 

Most financial institutions have been barred from running lotteries of any kind, but a 2014 law created an exception for savings promotion raffles conducted by banks and credit unions, which cleared the way for institutions around the country to begin offering PLS accounts. 

How seriously terrific a thing is this for those hoping to retire one day? Pretty terrific when you consider that 16 percent of the respondents on a Consumer Federation of America study said they believed that playing the lottery was the best retirement strategy out there. As noted in a Bipartisan Policy Center report, "apparently, no one told them that the odds of winning are infinitesimally low—around one in 292 million." Want more? The same report says that you are 300 times more likely to get struck by lightning in any given year than to win the lotto. And yet Americans spent more than $70 billion on tickets in 2014, according to CNN.

Lotteries are the poor man's answer to having it all. States fill their coffers off the backs of the low-income people who can least afford to lose their money. What's not to love about the carrot-and-the-stick approach of PLS accounts?

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