Other Unpublished Work
Saving More to Borrow Less: Evidence from Randomized Access to Formal Savings Accounts in Chile
Poverty is often characterized not only by low average income, but also by highly variable income and expenditures, and a lack of access to insurance services that can help smooth consumption. We investigate whether access to a formal savings account can provide a vehicle for self-insurance, by allowing participants to build a buffer stock of precautionary savings. In a randomized field experiment in Chile, about 3000 low-income micro-entrepreneurs are provided access to a formal savings account with no minimum balance or maintenance fees. Evaluating the impact after one year, we find that access to such accounts helps participants alleviate the burden of economic shocks, both objectively and subjectively. Participants with access to a savings account have less informal debt, fewer outstanding payments, and less often need to reduce consumption due to economic difficulties. Subjectively, they report being less worried about their financial future, and evaluate their recent economic situation as less severe. We therefore conclude that formal savings accounts can be an effective vehicle to provide a means for consumption smoothing in contexts where many other forms of insurance are lacking.
Keywords: Income Characteristics;
Borrowing and Debt;
Kast, Felipe, and Dina D. Pomeranz. "Saving More to Borrow Less: Evidence from Randomized Access to Formal Savings Accounts in Chile." 2013.