Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile

51 Pages Posted: 16 Jun 2014  

Felipe Kast

Pontifical Catholic University of Chile

Dina Pomeranz

Harvard Business School

Multiple version iconThere are 2 versions of this paper

Date Written: June 12, 2014

Abstract

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.

JEL Classification: D14, D91, G22, O16

Suggested Citation

Kast, Felipe and Pomeranz, Dina, Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile (June 12, 2014). Harvard Business School Entrepreneurial Management Working Paper No. 14-001. Available at SSRN: https://ssrn.com/abstract=2451036 or http://dx.doi.org/10.2139/ssrn.2451036

Felipe Kast

Pontifical Catholic University of Chile ( email )

Ave. Vicuna Mackenna 4860, Macul
Santiago
Chile

Dina Pomeranz (Contact Author)

Harvard Business School ( email )

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

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