Article Citation:
Mayhew, L., & Smith, D. (2014). Personal Care Savings Bonds: A New Way of Saving Towards Social Care in Later Life. Geneva Papers on Risk & Insurance, 39(4), 668-692. doi:http://dx.doi.org/10.1057/gpp.2014.30
Main Issue of Article:
The article “Personal Care Savings Bonds: A New Way of Saving Towards Social Care in Later Life” is an interesting take on a new way to pay for your elderly care after retirement. “Social care” is what most people would associate with long-term care. Personal Care Savings Bonds (PCSBs) go about it in a whole different way. The general idea is to blend a traditional savings bond with the lottery. Combining the practical long-term, safe, savings of a bond with the instant gratification of winning a large cash prize. A very large expenditure of people at the end-stages of life is the cost of their care. These costs often destroy personal savings and drain the assets a person wants to leave to their families all while still costing the government (tax payers) billions of dollars per year. PCSBs would hope to encourage more saving by individuals by introducing a lottery aspect. As with any lottery, a person would buy as many “tickets” as they would like. If their number is chosen, they would win a large cash prize. How PCBSs differ is that the bulk of the money from the ticket would go towards a guaranteed bond. As people buy more and more tickets, the amount in their PCSB account would grow. The administrators would invest the money and add interest to the account over the years. As people continued to buy these tickets, they could see their account balances rise. The money would be available to the individual when they reached certain milestone or eligibility requirements. The lottery aspect of PCSBs would be funded by the returns made on the purchase of the tickets. The example they used was: “if the real rate of return is 2.5 per cent, which is split 1.5 per cent fund retention and 1 per cent distributed as prize money (Mayhew & Smith, 2014).” This means the lottery payout would not be anywhere near the levels of the current large lotteries like Powerball. The tradeoff, however, is that you are guaranteed money back at some point. When you buy the Powerball ticket, and don’t win, your money is just gone. The idea is to attract an audience not typically associated with savings. There are studies that show the poorer a person is, the more likely they are to spend money on lottery-type purchases. The hope is to attract those people to buying PCSB tickets because they would have better odds of winning than in a lottery and they would have the added benefit of seeing their personal account grow with each purchase. This product would also be targeted towards people that are interested in saving, but can’t afford long-term care (LTC) insurance premiums. The PCSBs would offer another avenue for these people. They could purchase tickets regularly (similar to making a monthly LTC payment), but at a more affordable level for their budget. They would be accomplishing the same goal with less investment. The PCSB also has an advantage over LTC policies in that the money is never forfeit. It is designed to help pay for care needed by people after retirement. Once a person reaches the set requirements, the money is given to them to cover their expenses. Should the person die before they use all of their money, the remainder is given to the person’s estate. Either way, the money benefits the person or their family while reducing their need for federal aid.
Relationship to Course:
We have been learning a lot about bonds, interest, and the present and future values of money. This article shows a practical example of how that information could be used in the real world for the purposes of effecting real and wide-spread change. The article contains many figures that show what the future value of the money would be given different returns and buy-ins from the public.
Personal Reflection and Comments: I started my search for this project wanting to find a real-world application of the concepts we have been studying. While our quizzes and homework problems are filled with real-world applications, I wanted to see them used in a new or unique way. It is my starting point for most any paper I have to write. The uniqueness captures my interest and makes writing the paper more personal and enjoyable to me. It is a tough thing to find and many times I have to give up on finding it in the time allowed. I was very excited to find something like it for this paper. The Personal Care Savings Bond idea is definitely a unique idea and one I personally find very interesting. It is an interesting way to entice people into saving that normally would not. We cannot rely on the government for everything. Having ideas like this, I feel, is a great way to get more people involved in funding their own needs.

Information on Geneva Papers on Risk & Insurance:
“Founded by The Geneva Association in 1973, this prestigious journal leads its field, publishing papers which both improve the scientific knowledge of the insurance industry and stimulate constructive dialogue between the industry and its economic and social partners.”

Palgrave Macmillan. (2015). Welcome to The Geneva Papers on Risk and Insurance - Issues and Practice. Retrieved October 5, 2015, from http://www.palgrave-journals.com/gpp/index.html