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Learning by Doing: Can Savings Lotteries Build Financial Capability? Martin Kanz , World Bank

Learning by Doing: Can Savings Lotteries Build Financial Capability? Martin Kanz , World Bank. Introduction. Two key challenges in building financial capability How to increase [access to and] active use of formal banking services? For those who have access, how to incentivize saving?

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Learning by Doing: Can Savings Lotteries Build Financial Capability? Martin Kanz , World Bank

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  1. Learning by Doing: Can Savings Lotteries Build Financial Capability? Martin Kanz, World Bank

  2. Introduction • Two key challenges in building financial capability • How to increase [access to and] active use of formal banking services? • For those who have access, how to incentivize saving? • Evaluation of a savings promotion in Nigeria • Savings incentive program run by a private sector bank • Incentivizes saving through “learning by doing” • Wide appeal through lottery features • Question: how useful are savings lotteries in… • Building financial capability by incentivizing savings • Serving as a stepping stone into formal banking?

  3. What are prize linked financial products (PLPs)? • Prize linked financial products • Financial product that offers regular returns + lottery component • Typically used in combination with savings products • PLPs are not new: widely and successfully used throughout history • French state used “prize bonds” to finance deficit left by Louis XIV • UK Premium Bonds introduced in 1931, popular form of saving • More recent examples: commercial savings lotteries • South Africa: First National Bank’s Million-a-Month Account • Zambia, Tanzania, Gambia, Malawi. Ecobank “WinBig” • Works like a “commitment savings product” • commercially viable for the bank • no downside risk for the client

  4. The “I-Save-I-Win” Lottery in Nigeria

  5. The “I-Save-I-Win” lottery in Nigeria Program rules • Savings lottery ran from April 4, 2011 to October 31, 2011 • Program rules deliberately simple to attract widespread participation • Keep balance of N50,000 (US$300) for minimum of 90 days • Both existing and new account holders are eligible • Lottery applies only to dedicated savings accounts • Qualifying account holders eligible for cash and non-cash prizes • Prizes were drawn in 6 regional and 1 national prize drawing

  6. The “I-Save-I-Win” lottery in Nigeria Prize drawings • 7 prize drawings between July and October 2011 • 6 Local prize drawings, staggered in time • 1 Drawing for “Grand National Prize” • 611 lottery winners Regional Prizes • 20 x N10,000 • 10 x N20,000 • 10 x N50,000 • 10 x 32” LCD Television • 1 x Toyota Corolla National Prize • 1 x Apartment in Lagos or N15,000,000

  7. Program Evaluation

  8. Program Evaluation: Data > > Detailed micro-data on 1,830,311 savings account holders • Demographics and Location • Account balances • All 1,352,690 account holders that could qualify for ISIW • 477,621 account holders from a control bank that had no savings promotion during this time period • Daily balances Oct 1, 2010 – Aug 30, 2012 • Total of 957,252,653 • Use of financial Products • List of all financial products (cards, loans etc.) used by each customer • Evolution over time, at program and control bank

  9. Program Evaluation: Data 4. Regional and national prize winners • List of all 611 prize winners • Amount, type of prizes won • Branch, location • Date of drawing Questions • Does ISIW encourage saving? How do savings balances respond? • Does ISIW promote banking relationships? Do we see greater use of financial products over time?

  10. Results: savings balances Table 1: Δ in Savings Balances [7 day window] • Estimation strategy: use regional variation in drawings • Estimate balance changes around lottery draws • Strong short-term effect on savings balances

  11. Results: transactions Table 2: Transactions • Positive effect on frequency of transactions • Economically small due to large number of inactive accounts

  12. Results: Long run use of financial products Table 3: Change in number of products used pre/post • No effect on long term use of formal banking services • How to incentivize persistent change? • Policy challenge familiar from other financial literacy contexts

  13. Summary and Policy Implications • Evaluation of a “savings lottery” to build financial capability • Significant short-term effect on savings • Lottery is effective at generating awareness about saving • Intervention is cost-effective and commercially viable • Lottery provides “actionable” incentives that change behavior • “Learning by doing” may be more effective than learning by teaching • Results on longer-term effects highlight policy challenges • Longer-term effects on use of financial products limited • …similar to findings on financial education through teaching • How to generate persistent changes in behavior?

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