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Prize-linked savings bill moves to Iowa house
DES MOINES, Iowa (3/17/11)--A bill that would allow Iowa's credit unions to offer prize-linked savings account as an incentive for Iowans to save more money recently passed the Iowa Senate (SF 490) and now moves to the House for consideration, according to the Iowa Credit Union League. “Financial illiteracy is one of the root causes of our current financial crisis and the prize-linked savings program can serve as a tool to help Iowans improve their financial lives,” said Patrick S. Jury, league CEO/president of the league. “The need for innovative ways to save could not be more apparent. If we want to change behavior, we need to change our traditional ways of thinking.” Prize-linked savings programs provide incentives to consumers to save more money regularly by offering various prizes tied to a savings account. The promotions keep the saver motivated to save throughout the year. The result is a learned behavior of savings and more money in Iowans’ pockets. “This project has led to an experiment that has been successfully implemented. This approach targets the low-income population for saving, which may help [low incomers] form better savings habits,” said Dr. Tahira Hira, professor and assistant to the Iowa State University president. For example, for every $25 deposited into such an account at a credit union or bank, the saver would receive a chance to win raffle prizes. Members’ money remains in their account and accrues interest. "It’s important to stress that consumers would not lose a penny of their hard-earned savings,” said Jury. “Whether or not savers win additional prizes, they still have the money they saved plus the interest accrued. These accounts are a no-lose proposition.” This approach has proven successful in other states and has been championed by Harvard Business School professor Peter Tufano and the non-profit he founded, Doorways to Dreams Fund. Eight Michigan credit unions introduced prize-linked savings in 2009. Last year, more than 16,500 Michigan residents opened accounts through the contest, saving $28.1 million. Roughly 56% of participants hadn't saved regularly before, and 59% spent money on a lottery in the previous six months. Michigan credit unions also found that even minor rewards could spur interest: people who won a smaller monthly prize were more likely to deposit more money into their savings the next month. “The time is right for our state to increase its focus on savings habits to shore up household finances and strengthen Iowa’s economy as a whole,” said Jury. “A prize-linked savings program, which requires no public subsidies or taxpayer expense, could help more Iowans build a stronger fiscal foundation. We look forward to working with the Iowa House to advance this legislation.”


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