For more than a decade, a tiny Boston nonprofit, the D2D Fund, has tried to develop innovative ways to help low-income earners save and improve their finances. The executive director, Timothy Flacke, recently spoke with Globe reporter Todd Wallack.
What’s the best example of your work?
I think the prize-linked savings is a strong example.
Prize-linked savings is the idea that saving money can earn you the chance to win prizes. The core insight is we can take something that is perceived as self-denial and make it exciting, engaging, and rewarding.
Where is it being used?
For 50 years or so in the United Kingdom. In this country, prize-linked savings had not been tried until we began to experiment with it. In 2009, eight credit unions [in Michigan] offered a prize-linked savings account. For every $25 that a saver puts into a “Save to Win account,’’ they earn a chance to win $100,000 and a package of monthly prizes. We’re up to 42 credit unions or more now.
Does it work?
There are 26 million Britons who hold these accounts. It’s been tried in countries around the world. There was a product in South Africa that was wildly successful until the Supreme Court ruled it unconstitutional.
Why was it found unconstitutional?
It was ruled to be an inadmissible private lottery.
Is it a lottery?
It’s a lottery. But it’s not a gambling lottery. Usually, when people hear the word lottery, they think of opportunity to lose. This is strictly win-win. The product in Michigan in 2009 attracted 11,600 people in 11 months and they saved about $8.5 million.
Are people saving more or just moving their money?
It’s hard to know. In Michigan in 2009, we surveyed people who opened accounts. A substantial portion reported they had no prior savings or very little prior savings. So that gives us optimism that we are reaching people who are beginning to save.
Why hasn’t it caught on in the United States?
States have the exclusive right to have lotteries. There are sometimes exceptions for nonprofits, but the default is that you need special policy to allow it.
So, how do you get around the restrictions?
It turned out Michigan has a law that authorized this type of thing. And since we’ve begun this work, Maryland, Rhode Island, Maine, Nebraska, Washington, and North Carolina have all passed some sort of prize-linked savings law.
What about Massachusetts?
I’m not aware that anybody has expressed interest in sponsoring that in Massachusetts.
You mentioned credit unions are offering this in Michigan. What about banks?
Federally charted banks have an explicit prohibition from being involved in lotteries. But there’s another way banks can offer this program, which is the sweepstakes model. The difference is people who don’t save would still have to have the opportunity to win. Think about McDonald’s - where if you buy a hamburger you have a chance to win a Monopoly game. They always say, “No purchase necessary to participate,’’ and that’s the way they are allowed to do that. So if you are a Bank of America, Citizens Bank, or fill in the blank, you could run a sweepstakes.
Have you talked to any large banks?
We have talked to some. I think a lot are looking at this quite closely.
What are other programs you’re working on?
The federal government sends about $300 billion a year back to 100 million Americans in the form of tax refunds. It’s a huge financial event. The problem is that it hasn’t been easy to help people save. Many people don’t have a savings account. So we started testing [savings bonds] and found a really strong response. We asked the Treasury Department to consider [allowing people to earmark refunds for savings bonds] and now it is policy.
Anybody receiving a federal refund can check a series of boxes and have anywhere from $50 to $5,000 of their federal refund in inflation-protected savings bonds. This past year, about 36,000 people saved about $11 million.
Anything you’re working on for the future?
We are always looking for new ideas. One is to think about the potential to use college admissions testing to build financial literacy. What if the language in the questions revolved around financial concepts. Say you have a choice of two payday lenders. Which one is the better deal? You wouldn’t be adding new content to the test. But you would be subtly introducing them to the themes of financial capability.