Leveraging the Lottery for Financial Inclusion: Lotto-Linked Savings Accounts in Haiti

• Development Workshop

Date and Location

Monday, January 30, 2017, 4:10 PM - 5:30 PM
ARE Library Conference Room, 4101 Social Sciences and Humanities

Abstract

Many Haitians are more familiar with lottery wagers than any other financial transaction and few have access to savings products. In a lab-in-field experiment in Portau-Prince, we asked 306 participants to make a series of decisions to allocate a fixed budget across consumption, a real-world lotto product, a real-time traditional savings product, and a lotto-linked savings product (LLS) that blended the two by providing lotto credit in lieu of interest payments. We find that the introduction of LLS increased total upfront savings by 22 percent, an increase roughly equivalent to that induced by raising the interest rate on the traditional savings product from 5 to 20 percent. An LLS product with a small lotto component was equally effective at increasing savings as one with a larger lotto component. An LLS product with a lower expected return than traditional savings was equally effective as one that had the same expected return
as the savings product. The LLS-induced increase in savings was financed by large reductions in lotto spending and the amount saved in the traditional savings product and smaller reductions in consumption. LLS-induced savings were most pronounced for individuals who overweight small probabilities.