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Savings Accounts to Borrow Less: Experimental Evidence from Chile

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  • Dina Pomeranz
  • Felipe Kast

Abstract

Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. In a randomized field experiment with more than 3,500 low-income micro-entrepreneurs in Chile, we find that providing access to free savings accounts decreases participants’ short-term debt. 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.

Suggested Citation

  • Dina Pomeranz & Felipe Kast, 2024. "Savings Accounts to Borrow Less: Experimental Evidence from Chile," Journal of Human Resources, University of Wisconsin Press, vol. 59(1), pages 70-108.
    • Handle: RePEc:uwp:jhriss:v:59:y:2024:i:1:p:70-108
    Note: DOI: https://doi.org/10.3368/jhr.0619-10264R3
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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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