In all the recent debate over budget deficits, few people have noticed that America has started saving again. Personal saving in the US has risen from 1.4 per cent of income in 2005 to 5.8 per cent in 2010, and new data this week from the Federal Reserve confirm the higher savings rates are continuing. A dramatic, sudden further increase in saving would harm the recovery. But as the world gradually emerges from the economic downturn, global rebalancing means the US and Europe must save more over time. Savings lotteries, like Britain’s popular Premium Bonds, can provide an intriguing way forward.

No one can deny that people love lotteries. In 2008 Americans spent more on lottery tickets than on beer, or milk. Low-income families, in particular, spend a higher share of their income on tickets. Critics are quick to pounce, though, on the costs: spending $1 on a state lottery ticket produces an expected loss of roughly 50 cents, on average. These losses, often borne by poorer families, mirror the revenue gained by the state governments who run the games. Lotteries are thus a regressive form of financing, and attacked by advocates for the poor.

One reason for their enduring popularity may be that lotteries offer a (highly improbable) chance for a massive increase in wealth otherwise unavailable to poorer families. Research suggests that winning the lottery produces only an ephemeral increase in happiness, but that’s not how it seems before winning.