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Cash in Hand and Savings Decisions

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  • Spantig, Lisa

    (LMU Munich)

Abstract

Cash is an important means of transaction, generally assumed to be fungible. However, behavioral economics and consumer research show that \'cash in hand\', physically holding on to cash and then handing it away, affects purchasing decisions. I study how cash in hand influences decisions in a different but very important domain: savings. Savings accounts are a promising tool for reducing poverty, but the use of savings accounts is often puzzlingly low. Holding on to cash that needs to be physically deposited into a savings account may increase the psychological costs of saving. This study experimentally identifies the causal effect of cash in hand on savings deposits of microfinance clients in the Philippines. In contrast to many laboratory and several field studies with similar interventions, I do not find reduced savings deposits due to cash in hand. I discuss reasons for and consequence of this surprising finding, in particular for developing economics where lots of transactions are still cash-based.

Suggested Citation

  • Spantig, Lisa, 2019. "Cash in Hand and Savings Decisions," Rationality and Competition Discussion Paper Series 180, CRC TRR 190 Rationality and Competition.
  • Handle: RePEc:rco:dpaper:180
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    cash; savings; experiment;

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • G40 - Financial Economics - - Behavioral Finance - - - General

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