Grant Bosse: In this lottery, everyone wins
Are you feeling lucky? I didn’t win last week’s $587.5 million Powerball jackpot, and neither did you. It’s just as well. After splitting the prize with the other winners, paying taxes, and taking the winnings in a lump sum, you’d probably clear $100 million. That hardly seems worth the paperwork. But I do know of one kind of sweepstakes where everyone’s a winner!
The big winners from Powerball and other lotteries are state governments. Across the county, states pocket nearly $18 billion a year on almost $60 billion in ticket sales. New Hampshire led the way when it created the nation’s first modern lottery in 1964, earmarking the profits to education funding. In Fiscal Year 2011, the lottery gave away more than $139 million in prizes, and transferred $62 million to the state’s education trust fund.
Following this spring’s record $656 Mega Millions jackpot, Charlie McIntyre, executive director of the New Hampshire Lottery Commission, estimated ticket sales generated about $1.5 million in extra revenue for the state. So it’s safe to assume that we brought in at least an extra million last week from Powerball sales.
But that’s small change compared with the New Hampshire Lottery’s real money-maker, instant scratch tickets. We spent more than $161 million on scratchers in FY 2011, compared with $64 million for Powerball, Mega Millions, Tri-State Megabucks, Pick 3, Pick 4, and Hot Lotto combined.
Voltaire is sometimes credited with saying that the lottery is a tax on stupid people, or people who are bad at math. Like most quotes attributed to Ben Franklin, it’s just too good to stop using, whether or not he said it.
It’s true that buying a lottery ticket is a sucker’s bet. The state siphons off a large chuck of ticket sales, resulting in odds that would be criminal if a casino offered them. I buy a few lottery tickets a couple of times a year. It’s a cheaper diversion than renting a movie. You’re not buying any reasonable chance of multi-million dollar jackpot. You’re buying a few hours of daydreams.
As a pleasant diversion, state lotteries can be a fun way to boost revenue. But critics argue that these games, particularly instant games, take money from the people who can least afford to lose it. They worry that the poor see the lottery as their only way out of financial hardship, and spend money on scratchers that should be going into the bank.
But what if there was a way to use the lure of big-money jackpots to increase our abysmal savings rate? Stephen Dubner of the Freakonomics podcast calls it the “No Lose Lottery.” The concept is known more formally as Prize Linked Savings.
I opened my first savings account with my allowance money back when banks were handing out toasters and clock radios for opening a new account. Under Michigan’s “Save To Win,” a group of 36 credit unions entered account holders in a raffle for every $25 they deposited into a special account. That money earned interest and the credit unions gave away small monthly prizes and a big annual jackpot. The program attracted nearly 17,000 account holders, 56 percent without a previous savings account.
The United Kingdom, New Zealand, Brazil, Mexico and Germany have all tried PLS. Maryland authorized its banks to offer prizes earlier this year. PLS accounts offer lower interest rates than other options, but the goal is to attract people who would otherwise save nothing.
The problem with PLS is that it threatens the state’s sweepstakes monopoly. South Africa’s National Lotteries Board sued to shut down that county’s hugely successful PLS program.
We already allow private sweepstakes. You could win a million dollars at McDonald’s. Publishers Clearinghouse has been using jackpots to sell magazines for decades. Since you can enter for free, No Purchase Necessary, it’s not quite gambling. Why not allow a similar option to banks and credit unions?
Whether or not the Legislature approves a casino at Rockingham Park next year, New Hampshire is already in the gambling business. Prized Linked Savings accounts are a constructive way to let people daydream about a prosperous future while actually setting money aside to make it a reality.
(Grant Bosse is vice president for media for the Josiah Bartlett Center for Public Policy, a free market think tank based in Concord.)