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Downing: Legislature Enacts Financial Empowerment Bill
October 06, 2016

BOSTON State Senator Benjamin B. Downing (D - Pittsfield), announces that the House and Senate gave final approval S. 2374 – An Act to promote personal savings.

The bill, authored by Senator Downing, authorizes banks and credit unions in Massachusetts to offer prize linked savings accounts (PLSA). Unlike traditional savings accounts which accrue a small percentage of interest over time, the interest in PLSAs is pooled across all such accounts and distributed through a lottery as a cash prize to account holders. Each qualified deposit an accountholder makes is another entry in the raffle.

“Creating incentives to encourage savings is a simple step to help hardworking families develop the assets they need to meet life's challenges,” said Senator Downing. “The success of PLSAs across the country in attracting new and non-traditional savers suggests this bill will do just that”.    

If the bill is signed into law, Massachusetts would join 15 states that allow such products. In each state that has implemented them, PLSAs have resulted in new savings accounts totaling over $100 million. Most promisingly, the largest gains have been in populations of non-traditional savers – low income families who would not otherwise have the safety net of a savings account. PLSAs are particularly effective at attracting new savers, as they eliminate the concept of savings as self-denial with a creative twist.

Save to Win Michigan was the first PLSA program in the United States. According to Commonwealth (formerly Doorways to Dreams), an organization that promotes Prize Linked Savings programs, Save to Win’s first year of operation resulted in 11,600 residents opening accounts totaling $8.6 million. 39% of participants in the inaugural year were considered asset poor (having less than $5,000 in non-home assets), 44% earned less than $40,000 per year, and the majority had not been savers prior to the program. Since the Michigan pilot, 5 other states have joined Save to Win, distributing $300,000 in prizes in 2014 to 3,233 account holders. In this cohort, up to 91% of account holders indicated at least one measure of financial vulnerability and nearly all of them maintain their accounts year after year.

"Commonwealth is thrilled to see prize-linked savings legislation progressing in Massachusetts,” said Timothy Flacke, Executive Director of Commonwealth. “We have seen the promise of this innovative solution in getting people to save - over $145 million has been saved so far in PLS accounts. We look forward to working with financial institutions and organizations to bring these products to Massachusetts and help build widespread financial security and opportunity for families. We applaud the legislature for passing S. 2374 and thank Senator Ben Downing for his support."

Maintaining a savings account is a key part of financial literacy and a necessary fiscal safety net to avoid what a 2014 Crittendon Women’s Union report called “the credit trap”. The report details the struggles of low-income families who regularly borrow for basic expenses through credit cards, short-term bank loans, or expensive payday advances. The resulting debt creates cycles of generational poverty.  Saving for unexpected expenses or long-term investments can help families avoid this trap and build their assets.  

The bill now goes to the Governor’s desk to be signed into law.

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