The Key to Saving Is Gambling. Seriously.

Why do we seem to gamble our most precious — and often our last — dollars for a small chance to win big?


Here’s a mystery for you: 66 million Americans have zero dollars saved for a rainy day — no financial reserves whatsoever — and 63 percent of us don’t have enough money saved to cover an unexpected $500 expense without resorting to a credit card or a pawn shop. At the same time, we spend $70 billion a year on lottery tickets, blow $120 billion gambling, and bet another $400 billion on sports events. The big mystery, which you’ve probably spotted, is why we seem to gamble our most precious — and often our last — dollars for a small chance to win big?

For a long time the academic community saw gambling as evidence of irrationality and a lack of financial sophistication. If we could just teach these people to think rationally, the logic went, they would behave differently and do the “right thing.” Ironically, the very rational idea that the world would be better off if we could just teach people to think rationally proved irrational.

So what to do? How can we help Americans break the vicious cycle of gambling and debts and create a new, virtuous cycle of saving and investments? It turns out, vicious and virtuous cycles aren’t as far apart as one might expect, and people have legitimate reasons for gambling and playing the lottery. Here are three of them:

Relative Value. In the 1970s two academics, Amos Tversky and Daniel Kahneman, figured out that we are not — at least most of us — robots; rather, we are irrational beings. These godfathers of behavioral economics demonstrated that we typically ascribe a high personal value to a prospect that has a low probability of occurring, so long as that event would change our life in a dramatic way. They explained that choices between prospects with uncertain outcomes are determined not by some rational calculation of expected value but instead from a function that is based on a person’s unique situation. In short, they showed that poor people derive a higher relative value from a given lottery ticket than do the wealthy.

Missing Market. Grab a friend of yours — please, no ascot-wearing start-up founders or pinstriped masters of the universe — and ask that person to imagine themselves as a multimillionaire. Have them picture their wealth. Next, ask that person to picture how they became rich. Did they save diligently and invest? Or do they say, as most people do, that they won the lottery? Aside from helping a Nigerian prince get his family’s money out of Africa, the only path for many Americans to serious wealth is . . . gambling. It doesn’t matter that the chances of actually getting rich are about the same with the lottery and the prince; the lottery is perhaps the only legal and legitimate route to a new, financially stress-free life. And so people play; not because they think it’s a rational thing to do but precisely because they hope that a higher power might just smile down upon them. In this regard a lottery or a casino is filling the void of a missing market in the industry of hope. Where else can you literally buy hope for a dollar?

Legends. As the legend goes, FedEx CEO Frederick Smith took the courier’s last $5,000 to Vegas and turned it into $27,000 at the blackjack table, saving the company. Millions of Americans play games of chance because they too hope to catalyze their own turnaround story. If they could just win enough to pay the bills, they’d be on their way to success.


As you can see from these examples, the mystery that started this column isn’t really a mystery at all: The 66 million Americans without any savings are the same people who get the most value from playing games of chance. It may seem irrational, but they really do have legitimate rationales for their behavior — which means that simply trying to teach people to be rational via financial literacy programs is never going to work. But could a better understanding of gambling behaviors help us develop more constructive and financially sound pathways for these people?

I think so and thus co-founded Long Game with Lindsay Holden in 2016. Our goal is to help people stressed out by their financial situation and to make saving fun — maybe even as fun as gambling. Financial pressures weigh on all of us, and what we realized is that this burden makes games of chance more compelling and valuable for these stressed people, literally.

This is why Long Game is making a prize-linked saving account (PLSA) product, a lottery-linked personal saving account in which individuals receive chances to win big prizes for saving money. A PLSA combines the instant gratification of a lottery with the long-term benefit of a saving account, often by taking a small amount of the interest paid to everyone and using it instead to pay one big prize to a single saver. This offers a legal and legitimate means to change your life through luck with no chance of loss.

Given the right tools, Americans will replace the imagined jackpots of gambling with the real rewards of saving. We’re still early in learning how to harness the forces that drive people toward gambling and redirect them toward positive financial habits, but building this creative saving platform is a gamble we’re more than happy to take.