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Does Saving Cause Borrowing? Implications for the Co-Holding Puzzle

Author

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  • Paolina C. Medina
  • Michaela Pagel

Abstract

Using an experiment in which 3.1 million bank customers were encouraged to save, we explore the mechanisms behind co-holding liquid savings and credit card debt. Theoretically, we first show that the joint responses of spending, saving, and borrowing to the nudge differ for different economic models of co-holding. Using machine learning techniques, we then find that the most responsive individuals reduce spending and increase their savings by 4.9% (206 USD PPP per month) while their credit card debt remains unchanged. For them, the marginal responses to the nudge are consistent with our model of co-holding for the purpose of self- or partner control.

Suggested Citation

  • Paolina C. Medina & Michaela Pagel, 2021. "Does Saving Cause Borrowing? Implications for the Co-Holding Puzzle," NBER Working Papers 28956, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28956
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    Cited by:

    1. Dutt, Satyajit & Radermacher, Jan W., 2023. "Age, wealth, and the MPC in Europe: A supervised machine learning approach," SAFE Working Paper Series 383, Leibniz Institute for Financial Research SAFE.
    2. Antonio Gargano & Alberto G. Rossi, 2024. "Goal Setting and Saving in the FinTech Era," Journal of Finance, American Finance Association, vol. 79(3), pages 1931-1976, June.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G5 - Financial Economics - - Household Finance

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