Today we will discuss the morality of prize-linked savings (PLS). What is PLS? It is the idea that you put money in a bank account and that instead of earning interest on that money, you join a lottery pool that is paid out with that interest. So, in theory you could put $100 in the bank and earn $1 million with your interest.
You can read more about PLS from the Freakanomics folks here.
The monetary advantage: you never lose the original $100. If you play the state lottery, the chances of you losing your investment are very, very high.
The monetary disadvantage: the chance of winning is still lower than your chance of earning interest on that money, even if you only get 1 percent a year in interest.
My question is: is there any moral difference between playing the lottery with the interest on your savings and playing the state lottery at your corner market? My secondary question is: would you pay tithing on your increase if you won a PLS (we already know the Church does not accept tithing on lottery winnings).
Before we start, let’s make something very clear: if you regularly play the lottery, you are not making a good investment. Of all of the games of chance, the state lottery has among the worst odds. If you don’t believe me, read this, which calls the lottery a tax on stupid people.
So, I think it’s fair to say that the Church advises against playing the lottery. Speaking in secular terms, I advise against it because it’s a horrible investment, one of the worst you can make.
So, is PLS any different?
On the one hand, the answer may be yes, especially these days when other investments are extremely risky and you earn in the low single digits on all safe investment vehicles. If you put $10,000 in a savings account these days, even if you buy a CD, the interest rates are ridiculously low. You might earn $100 a year in interest. So, who cares about losing $100 when you might have a chance to win $1 million?
On the other, if you put that $100 in a PLS, and you don’t win, it’s exactly like spending $100 a year on the lottery, which President Hinckley has advised against. My guess is that your local bishop also wouldn’t accept tithing if you hit the jackpot, so there probably is no moral difference between a PLS and the state lottery. But, hey, I could be wrong: if you asked your bishop about paying tithing on interest, he would probably say yes. Why not pay tithing when your bank account suddenly explodes?
Another interesting thing to ponder: let’s say you learned how to buy shares and bought Facebook or Google when the stock was first being issued, and you make millions on that. That is a “game of chance,” right? There is no guarantee the stock will take off. Yet, you would probably be expected to pay tithing on that capital gain if you sold the stock.
According to buyshares.co.uk, so far, only Michigan in the U.S. has a PLS system. There is a push on to allow such savings accounts in an attempt to push the savings rate in the U.S. It would certainly accomplish that goal. The problem is that most state lotteries probably wouldn’t accept PLS systems because they have state-wide monopolies on lotteries.
Being completely moral with your money is often more complicated than it seems.