Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile
Pontifical Catholic University of Chile
Harvard Business School
June 12, 2014
Harvard Business School Entrepreneurial Management Working Paper No. 14-001
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.
Number of Pages in PDF File: 51
JEL Classification: D14, D91, G22, O16
Date posted: June 16, 2014
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