Saving More in Groups

Peers can have both negative and positive effects on human behavior. The use of peers as a commitment device to reach a shared but individual goal is a widely observed phenomenon, both informally (e.g., running groups or study groups) and formally (e.g., weight-loss groups). On the other hand, peer pressure can also lead individuals to make sub-optimal decisions. While self-help peer groups have been subject to theoretical analysis, to our knowledge there is no clean evidence investigating whether peer groups make participants more likely to increase their savings, and if so, what aspects lead to this effect.

Self-help peer groups increase savings

For this project, we conducted two randomized field experiments among low-income micro-entrepreneurs in Chile to study the power of 1) self-help peer groups and 2) peer-related text messages for precautionary savings. We offered 2,687 micro-entrepreneurs, who met regularly in groups as clients of a microcredit association, the opportunity to open a formal savings account. Our first experiment, the “Peer Group Experiment,” shows that self-help peer groups, which combine public goal setting, monitoring in the peer group and recognition for those who comply, significantly increase savings. A second experiment, conducted a year later, tests an alternative delivery mechanism and shows that effects of similar size can be achieved through feedback text messages, without meetings, rewards, or peer pressure.

Our results address a larger point about behavioral interventions versus financial incentives to affect behavior. A growing pattern of evidence shows the importance of social incentives and surprisingly limited effects of monetary rewards, even for financial decisions. Our finding of strong effects in the Peer Group Treatment and suggestive evidence from the feedback messages, compared to the limited effectiveness of the interest rate, fits into this pattern. While traditional economic incentives may be effective in contexts where individuals lack motivation, they may have limited impact if the constraint that impedes the behavior change lies elsewhere. Implementing behavior change can be challenging, even for motivated individuals – either psychologically, due for example to self-control problems, or practically, due for example to complicated processes. In these situations, policies that facilitate compliance may be more effective than policies that further increase incentives.

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Program area
Saving, Decision Making, Interest Rates, Performance Effectiveness, Entrepreneurship, Growth and Development
Fondo Esperanza
Study type
Field experiment
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Felipe Kast
Pontificia Universidad Católica de Chile
Stephan Meier
Columbia University GSB and NBER
Dina Pomeranz
Zurich CED

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