Savings Accounts to Borrow Less: Experimental Evidence from Chile

Out­line

Pover­ty is of­ten char­ac­ter­ized not only by low and un­sta­ble in­come, but also by heavy debt bur­dens. In a ran­dom­ized field ex­per­i­ment with over 3,500 low-in­come mi­cro-en­tre­pre­neurs in Chile, we find that pro­vid­ing ac­cess to free sav­ings ac­counts de­creas­es par­tic­i­pants’ short-term debt. 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.

Re­search Team

Author

Dina Pomeranz

Assistant Professor of Microeconomics, endowed by the UBS Center

Zurich ZCED

Fe­lipe Kast

Pon­ti­f­i­cia Uni­ver­si­dad Católi­ca de Chile