51 Pages Posted: 16 Jun 2014
Date Written: June 12, 2014
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: 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