Researchers studying the Dutch government’s banned the sale and purchase of traditional lotteries in 1905 found that overall, people who were less wealthy put more money into lottery bonds, while wealthy individuals decreased their holdings.
Photo: RNZ/Asia King
A University of Auckland researcher says there may be a way to turn Lotto into a new type of Bonus Bonds, to leave players much better off.
Senior finance lecturer Gertjan Verdickt and co-author Amaury De Vicq from the University of Groningen, studied what happened after the Dutch government banned the sale and purchase of traditional lotteries in 1905, but allowed lottery bonds as an alternative.
These were a fixed-income product that let people invest while also going into a prize draw.
People were guaranteed their money back plus interest, with the additional chance of winning a big prize.
“Lotto is often defended because it funds community projects, which is fantastic, but it can disproportionately draw spending from people on lower incomes,” Verdickt said.
“Maybe the government could move towards supporting people to put money into something where they get a safe return, and the chance for a big win.
“A premium government-led bond-style product could fund public projects, while allowing New Zealanders to grow their money rather than lose money week after week.”
The researchers found that overall, people who were less wealthy put more money into lottery bonds, while wealthy individuals decreased their holdings.
“The magnitude of the move towards lottery bonds indicates that these bonds could be considered a substitute for gambling.”
Senior finance lecturer Gertjan Verdickt.
Photo: University of Auckland
The researchers found younger people were less likely to take up lottery bonds, while older individuals showed a stronger move into them after the policy change.
Verdickt said the regulation of gambling had always been a challenge for governments.
“Our study shows the Dutch government’s lottery bonds were helpful; they channelled people’s urge to gamble into an instrument that also encouraged saving.”
He said governments like New Zealand’s might introduce a lottery bond as a safer alternative to playing Lotto.
“Of course, these days people have so many options online and in-person when it comes to gambling. You can’t ban the urge to gamble, but you can guide people towards safer channels.
“The lottery bond offered by the Dutch government, for example, wasn’t a perfect investment, but it did provide a better option for many people.”
ANZ offered Bonus Bonds in New Zealand until 2020. When the scheme closed, it had more than $3 billion invested.
Investors had one entry per bond into a monthly $1 million prize draw.
But at the time the decision was made to close, ANZ said low interest rates had reduced the investment returns of the scheme and the prize pool available.
Verdickt said the sort of scheme he had researched was different because it was issued by municipalities and governments, not for-profit companies.
He said the scheme was also different because the Bonus Bonds payout was drawn randomly.
“Lottery bonds have a guaranteed payout and the additional lottery aspect is drawn randomly. So, 99 percent of bonus bonds holders got nothing, while 100 percent of lottery bond holders get something – interest and principal – but only a small percentage get the large prize.”
Sign up for Money with Susan Edmunds, a weekly newsletter covering all the things that affect how we make, spend and invest money.
