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Hitting the Savings Lottery

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There's no such thing as a President who's an idiot 100% of the time. I'm certainly not a fan of the O, but there are a couple of things he's done that strike me as good ideas, long overdue. More focus on Community Colleges, for instance. Hiring people with a Behavioural Economics background into government is another good move, guaranteeing that he'll manage to do at least 1 non-stupid thing in the economic realm during his term. I don't have high hopes for reaching 2, but back to behavioural economics...

"Why Smart People Make Big Money Mistakes, And How to Correct Them" is a very accessible and entertaining read in that area, and I recommend it. There's also a cool application out there that leverages my "American Economy In One" note the other day about $57.4 billion in savings in 2007, vs. $92.3 billion on legalized gambling.

"Why not combine them?" asked finance professor Peter Tufano of Harvard Business School...

That way, you'd take advantage of people's gullibility in overestimating the odds of very unlikely events, in order to ensure they're sucked into something financially beneficial. There's already competition on that front, after all, it's not sound, and it's not going away. Why not turn the trap to something better?

Hence "Save to Win," launched for members of 8 credit unions in Michigan. As the Wall St. Journal reports:

"...it is a cross between a certificate of deposit and a raffle ticket. Members who put $25 or more into a Save to Win one-year CD are entered into a monthly "savings raffle" for prizes up to $400, plus one annual drawing for a $100,000 jackpot. Only Michigan residents are eligible to participate. This unusual CD is federally guaranteed by the National Credit Union Administration and pays between 1% and 1.5% annual interest, a bit lower than conventional rates. In 25 weeks, the program has attracted about $3.1 million in new deposits, often from people who have never been able to set money aside."

Way clever, as you'll see from the example. Regulators need to work to enable copycats, in volume, and soon.

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