Recent legislation has been introduced in the Senate called the American Savings Promotion Act. It would allow for the creation of prize-linked savings accounts offered by banks and other financial institutions at the federal level (some states already allow it on a limited basis). There are a number of benefits to promoting these types of accounts and savings in general. SaveUp has been ahead of the trend and has been offering a similar service for over two years. It’s exciting to see others catching on. The need is certainly there.
The Pew Foundation’s Economic Mobility Project found that 71% of children born to high-saving but low-income parents emerge from the bottom income quintile in one generation, compared to only 50 percent of children from non-saving low-income households. If that weren’t enough, according to the 2013 Economic Report by the President, “Americans’ personal savings rate has declined about 56% over the past 50 years.” In 2011, the annual savings rate in the United States was 4.1%.
After hearing this, it might not come as a surprise that many Americans don’t have a basic emergency fund in place. Which, as I’ve stated time and time again in this blog, is an important first step to improving ones finances. As those of you who play SaveUp know first hand, there are advantages to being motivated to save. The proposed legislation explains them this way:
1. Prize-linked savings (PLS) accounts make savings fun and exciting by offering participants a chance to win prizes based on deposit activity – the more one saves, the more chances he or she has to win prizes.
2. PLS accounts are safe, regulated financial products offered by financial institutions but with the added feature of offering the account holder chances to win prizes. Money in the account is never at risk, so even if someone does not win a prize, they still maintain all of their savings.
3. PLS accounts have proven to attract people who previously did not save and those with low incomes- helping Americans build a safety net for themselves, preparing them to meet future financial needs, and providing an alternative to costly credit.
It will be interesting to see if this legislation passes and if policies will be put in place to encourage more people to SaveUp!
This post was written by SaveUp’s personal finance contributing writer, Catherine Hawley, CFP®.
Image source: Forbes