Earmarking and Partitioning: Increasing Saving by Low-Income Households

Abstract

This research examines the effects of earmarking money on savings by low-income consumers. In particular, the authors test two interventions that are designed to enhance the effects of earmarking: a) using a visual reminder of the savings goal and b) dividing the earmarked money into two parts. Consistent with prior research which suggests that partitioning increases self-control, individuals save more when earmarked money is partitioned into two accounts versus pooled in one account. In addition, the presence of the visual reminder increases the savings rate. The authors conclude with implications for consumers’ welfare and a discussion of directions for further research.

Keywords: saving, self-control, guilt, budgeting

JEL Classification: D12, D91, E21, M31, O16