Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile
Felipe Kast
, Dina Pomeranz
Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. We find that reducing barriers to saving through access to free savings accounts decreases participants' short-term debt by about 20%. In addition, participants who experience an economic shock have less need to reduce consumption, and subjective well-being improves significantly.
Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. We find that reducing barriers to saving through access to free savings accounts decreases participants' short-term debt by about 20%. In addition, participants who experience an economic shock have less need to reduce consumption, and subjective well-being improves significantly. Precautionary savings and credit therefore act as substitutes in providing self-insurance, and participants prefer borrowing less when a free formal savings account is available. Take-up patterns suggest that requests by others for participants to share their resources may be a key obstacle to saving.
Explore USAID's LINKS sites for learning and knowledge sharing
Achieving agriculture-led food security
Advancing biodiversity conservation
Improving climate change and development programming
Creating successful and effective education programs
Solving global water and sanitation challenges
Strengthening land tenure and property rights
A collaborative learning community of development professionals
Sharing market-based solutions for development
Helping communities withstand crisis and thrive
Supporting sustainable urban development
We use cookies on our website to evaluate site performance and improve your experience. Click Accept if you agree to the use of these cookies, or More Information to learn about how we manage information on our site.