May 24, 2006

Modified American Plans

RECENTLY, THE Associated Press reported about an Arizona voter initiative that, if the people of that state were to approve, would give one lucky citizen $1 million just for casting a ballot in an election. This idea, which is particularly silly even for this day and age, reminds one of Benjamin Franklin's famous quip: "When the people find that they can vote themselves money, that will herald the end of the republic."

Still, this story got me thinking. The folks behind the Arizona idea are pushing it because they want more people to vote. It stands to reason that with $1 million up for grabs, more people than ever would turn out to vote.

Now, personally, I don't think that's a proper way to encourage voter participation in our democracy. However, we as a society do want Americans to save more money. A major prize, if offered as an incentive to save, would cause people -- especially those not already saving -- to storm the doors of any financial institution offering products with that incentive attached.

Basically, what I'm trying to say is that we -- whether it's the U.S. Treasury or the private sector -- might want to start looking into the idea of offering a lottery bond scheme, similar to the United Kingdom's scheme, which National Savings and Investments operates. It works like this: customers buy bonds, redeemable on demand, in which their capital is guaranteed. The interest from all the bonds is put into a prize pool. A computer then selects bond numbers at random and pays out (tax-free) prizes regularly, presently ranging from GBP 50 to GBP 1,000,000.

The trick, of course, is to encourage more people to save more money, but without putting other financial products at a disadvantage. After all, we want people to keep putting money in their 401(k)s and Roth IRAs and their brokerage accounts. Yet we'd also want savers to get some guaranteed return on their money, so we would probably want to only put some of the interest towards a prize pool, as opposed to all of it.

Anyway, that's just an idea that I had -- and undoubtedly, an idea others have had as well. As for the name of any such bond scheme, though, the Modified American Plan has a hell of a ring to it.

(via Boston Gal's Open Wallet)

Posted by Benjamin Kepple at May 24, 2006 10:33 PM | TrackBack
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