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Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device

56 Pages Posted: 12 Feb 2012  

Felipe Kast

Pontifical Catholic University of Chile

Stephan Meier

Federal Reserve Bank of Boston; IZA Institute of Labor Economics; Columbia Business School - Management

Dina Pomeranz

Harvard Business School

Multiple version iconThere are 2 versions of this paper

Abstract

While commitment devices such as defaults and direct deposits from wages have been found to be highly effective to increase savings, they are unavailable to the millions of people worldwide who not have a formal wage bill. Self-help peer groups are an alternative commitment device that is widespread and highly accessible, but there is little empirical evidence evaluating their effectiveness. We conduct two randomized field experiments among low-income micro-entrepreneurs in Chile. The first experiment finds that self-help peer groups are very potent at increasing savings. In contrast, a more classical measure, a substantially increased interest rate, has no effect on the vast majority of participants. A second experiment is designed to unbundle the key elements of peer groups as a commitment device, through the use of regular text messages. It finds that surprisingly, actual meetings and peer pressure do not seem to be crucial in making self-help peer groups an effective tool to encourage savings.

Keywords: savings, commitment device, peer pressure, field experiment

JEL Classification: O16, D03, D14, D91

Suggested Citation

Kast, Felipe and Meier, Stephan and Pomeranz, Dina, Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device. IZA Discussion Paper No. 6311. Available at SSRN: https://ssrn.com/abstract=2003624

Felipe Kast (Contact Author)

Pontifical Catholic University of Chile ( email )

Ave. Vicuna Mackenna 4860, Macul
Santiago
Chile

Stephan Meier

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

Dina Pomeranz

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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