At Creative Science I am constantly experimenting with new ways to move money into the social good space. To this end, I am constantly in search of effective solutions in the for-profit space that leverage behavioral science and translate them into charitable giving.
Recently, I’ve been wondering about other ways to encourage individuals to give.
How can we use psychology to make supporting NPOs more attractive? One concept that has recently caught my eye is called Prize-Linked Savings.
What is Prize-Linked Savings and How Does it Work?
Prize-linked saving accounts (PLSAs) are incentivized savings accounts that use the chance of winning a return to motivate people to build their personal savings accounts.
PLSAs, also known as lottery-linked deposit accounts, are savings accounts that distribute a portion of bank deposit interest payments as prizes, based on chance.
They provide the excitement of a sweepstakes or lottery, without the risk of losing the initial deposit. Commonly offered by banks, credit unions, and FinTechs, PLSAs occasionally provide returns in-kind, rather than cash prizes and have proven quite successful.
They provide the excitement of a sweepstakes or lottery, without the risk of losing the initial deposit.
These accounts are common throughout Argentina, Brazil, Colombia, Germany, Indonesia, Iran, Japan, Mexico, Oman, Pakistan, Spain, South Africa, Sri Lanka, Turkey, the United Arab Emirates, and Venezuela, and have been in increasing demand in recent years.
The key to a successful PLSA lies within this variable reward component. The possibility and anticipation of a larger payout is what makes PLSAs so attractive. It’s the same reason people play the lottery and check their phones consistently throughout the day — the chance to win is enough to draw participation.
Could a similar concept translate to the social good space?
What if we shifted the idea of Prized-Linked Savings towards the charity space? Could we integrate the same variable reward component of a PLSA into the social good space?
What if we shifted the idea of Prized-Linked Savings towards the charity space?
With this I’d like to introduce a new concept — Prize-Linked Giving.
My hypothesis is this: prize-linked giving has the potential to incentivize giving and make it more appealing for supporters.
If used correctly, could it have a massive, positive impact on the bottom line of NPO and social good organizations everywhere?
Introducing Two Models of Prize-Linked Giving
Prize-linked giving borrows the core concept from PLSA, the variable reward component but aims to encourage people to support nonprofits and social good organizations, instead.
In each model a charity wins big. One model revolves around giving, while the other focuses on saving.
Here are the two core models I’m currently proposing for prize-linked giving:
1. Donate to your charity of choice and give it the chance to win big
In this model, you donate money to a charity of your choice and by doing so you also enter the charity into a drawing to win a large sum of money.
For example, you donate $100 to Charity:Water. Charity:Water is now entered into a raffle to win $80,000.
Instead of your donation going to the charity right away, it is held in an investment fund for a year while it earns interest. At the end of the year, the total interest earned on your donation (and all the other donations collected) will be raffled off to one lucky charity.
For Example: You give $100 to Charity:Water. Charity:Water is entered into the raffle. Meanwhile, 999 other people donate $100 to various other charities. Those charities are also entered into the raffle. Their donations are held in the same investment fund for a year.
The total sum of the donations held equals $1,000,000 (10,000 donations x $100 per donation = $1,000,000 in total donations).
Over the course of the year the $1,000,000 earns 8% interest. The prize money is now $80,000 ($1,000,000 x 8%).
At the end of the year, all the charities receive the initial donations while the $80,000 in prize money is raffled off to one lucky charity.
2. Save money on behalf of your charity of choice and give it the chance to win big
In this model, money is held in an index fund, and the interest earned is raffled off to a lucky charity.
For example, you save $100 and select Charity Water as your preferred nonprofit. Charity Water is now entered into a raffle to win $80,000.
How does it work? Your deposit is held in an investment fund for a year, where it earns interest. At the end of the year, the total interest earned on your deposit (and all the other deposits) is raffled off to one lucky charity. The money you saved ($100) is returned to you.
This is the same concept as the prior one. Instead of donating $100, though, you’d be saving $100.
The Future of Giving: Incentivization is Key
In a world where everything from building a savings account to learning a new skill is gamified or incentivized, nonprofits can’t afford to be any different. As the world of nonprofit giving moves forward, I anticipate giving and engagement models adopting behavioral science ideas more readily.
In a world where everything from building a savings account to learning a new skill is gamified or incentivized, nonprofits can’t afford to be any different.
We are currently running several studies on the the models proposed for prize-linked giving and will report back soon with our findings.
Until next time,