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What Are the Headwaters of Formal Savings? Experimental Evidence from Sri Lanka

Author

Listed:
  • Callen, Michael

    (Harvard Kennedy School)

  • Mel, Suresh de

    (University of Peradeniya)

  • McIntosh, Craig

    (University of California,)

  • Woodruff, Christopher

    (University of Warwick)

Abstract

When households increase their deposits in formal bank savings accounts, what is the source of the money? We combine high-frequency surveys with an experiment in which a Sri Lankan bank used mobile Point-of-Service (POS) terminals to collect deposits directly from households each week. We find that the headwaters of formal savings are in sacrificed leisure time: households work more, with evidence that improved savings options generate an increase in labor effort in both selfemployment and the wage market. The results are consistent with a standard neo-classical model of the effect of real interest rate changes on intertemporal labor allocation, and suggest that the labor allocation channel is an important mechanism linking savings opportunities to income.

Suggested Citation

  • Callen, Michael & Mel, Suresh de & McIntosh, Craig & Woodruff, Christopher, 2016. "What Are the Headwaters of Formal Savings? Experimental Evidence from Sri Lanka," CAGE Online Working Paper Series 279, Competitive Advantage in the Global Economy (CAGE).
  • Handle: RePEc:cge:wacage:279
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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/279-2016_woodruff.pdf
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    Cited by:

    1. Lorenzo Casaburi & Rocco Macchiavello, 2019. "Demand and Supply of Infrequent Payments as a Commitment Device: Evidence from Kenya," American Economic Review, American Economic Association, vol. 109(2), pages 523-555, February.
    2. Kast, Felipe & Meier, Stephan & Pomeranz, Dina, 2018. "Saving more in groups: Field experimental evidence from Chile," Journal of Development Economics, Elsevier, vol. 133(C), pages 275-294.
    3. Saka, Orkun & Eichengreen, Barry & Aksoy, Cevat Giray, 2021. "Epidemic Exposure, Fintech Adoption, and the Digital Divide," SocArXiv b6nv3, Center for Open Science.
    4. Suresh De Mel & Craig McIntosh & Ketki Sheth & Christopher Woodruff, 2018. "Can Mobile-Linked Bank Accounts Bolster Savings? Evidence from a Randomized Controlled Trial in Sri Lanka," NBER Working Papers 25354, National Bureau of Economic Research, Inc.
    5. Simone Schaner, 2018. "The Persistent Power of Behavioral Change: Long-Run Impacts of Temporary Savings Subsidies for the Poor," American Economic Journal: Applied Economics, American Economic Association, vol. 10(3), pages 67-100, July.
    6. Galdo, Jose C., 2021. "Using Bank Savings Product Design for Empowering Women and Agricultural Development," IZA Discussion Papers 14523, Institute of Labor Economics (IZA).
    7. Joshua Blumenstock & Michael Callen & Tarek Ghani, 2018. "Why Do Defaults Affect Behavior? Experimental Evidence from Afghanistan," American Economic Review, American Economic Association, vol. 108(10), pages 2868-2901, October.
    8. Pascaline Dupas & Anthony Keats & Jonathan Robinson, 2019. "The Effect of Savings Accounts on Interpersonal Financial Relationships: Evidence from a Field Experiment in Rural Kenya," Economic Journal, Royal Economic Society, vol. 129(617), pages 273-310.
    9. Flory, Jeffrey A., 2018. "Formal finance and informal safety nets of the poor: Evidence from a savings field experiment," Journal of Development Economics, Elsevier, vol. 135(C), pages 517-533.
    10. Saka, Orkun & Eichengreen, Barry & Aksoy, Cevat Giray, 2021. "Epidemic exposure, financial technology, and the digital divide," BOFIT Discussion Papers 13/2021, Bank of Finland, Institute for Economies in Transition.
    11. Pascaline Dupas & Dean Karlan & Jonathan Robinson & Diego Ubfal, 2018. "Banking the Unbanked? Evidence from Three Countries," American Economic Journal: Applied Economics, American Economic Association, vol. 10(2), pages 257-297, April.
    12. Vincent Somville & Lore Vandewalle, 2017. "Access to Formal Banking and Household Finances: Experimental Evidence from India," CMI Working Papers 1, CMI (Chr. Michelsen Institute), Bergen, Norway.
    13. Pierre Bachas & Paul Gertler & Sean Higgins & Enrique Seira, 2017. "How Debit Cards Enable the Poor to Save More," NBER Working Papers 23252, National Bureau of Economic Research, Inc.
    14. Catia Batista & Pedro C. Vicente, 2018. "Is mobile money changing rural Africa? Evidence from a field experiment," NOVAFRICA Working Paper Series wp1805, Universidade Nova de Lisboa, Nova School of Business and Economics, NOVAFRICA.
    15. Pascaline Dupas & Dean Karlan & Jonathan Robinson & Diego Ubfal, 2018. "Banking the Unbanked? Evidence from Three Countries," American Economic Journal: Applied Economics, American Economic Association, vol. 10(2), pages 257-297, April.
    16. Casaburi, Lorenzo & Macchiavello, Rocco, 2015. "Firm and Market Response to Saving Constraints: Evidence from the Kenyan Dairy Industry," CEPR Discussion Papers 10952, C.E.P.R. Discussion Papers.
    17. Erica Field & Rohini Pande & Natalia Rigol & Simone Schaner & Charity Troyer Moore, 2021. "On Her Own Account: How Strengthening Women's Financial Control Impacts Labor Supply and Gender Norms," American Economic Review, American Economic Association, vol. 111(7), pages 2342-2375, July.
    18. Blumenstock, Joshua & Callen, Michael & Ghani, Tarek, 2016. "Mobile-izing Savings with Automatic Contributions: Experimental Evidence on Present Bias and Default Effects in Afghanistan," CEPR Discussion Papers 11400, C.E.P.R. Discussion Papers.
    19. Singh, Nirvikar, 2018. "Financial Inclusion: Concepts, Issues and Policies for India," Santa Cruz Department of Economics, Working Paper Series qt98p5m37s, Department of Economics, UC Santa Cruz.
    20. Pierre Bachas & Paul Gertler & Sean Higgins & Enrique Seira, 2021. "How Debit Cards Enable the Poor to Save More," Journal of Finance, American Finance Association, vol. 76(4), pages 1913-1957, August.
    21. Suresh de Mel & Craig McIntosh & Christopher Woodruff, 2013. "Deposit Collecting: Unbundling the Role of Frequency, Salience, and Habit Formation in Generating Savings," American Economic Review, American Economic Association, vol. 103(3), pages 387-392, May.
    22. Flory, Jeffrey A., 2014. "Banking the Poor: Evidence from a Savings Field Experiment in Malawi," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 171879, Agricultural and Applied Economics Association.
    23. Shilpa Aggarwal & Valentina Brailovskaya & Jonathan Robinson, 2020. "Saving for Multiple Financial Needs: Evidence from Lockboxes and Mobile Money in Malawi," NBER Working Papers 27035, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    savings; household decisionmaking; high-frequency surveys. JEL Classification: O16; D14; G21;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • 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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