Chris Blattman

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Why don’t the poor more save more?

No place to save, demands from kin, or self-control problems? Pascaline Dupas and Jon Robinson suggest it’s a little of each:

Using data from a field experiment in Kenya, we document that providing individuals with simple informal savings technologies can substantially increase investment in preventative health, reduce vulnerability to health shocks, and help people meet their savings goals.

The two main barriers that keep people from saving on their own appear to be transfers to others and “unplanned expenditures” on luxury items. Providing people with a designated safe place to keep money was sufficient to overcome these barriers for the majority of individuals, through a mental accounting effect.

Adding an earmarking feature reduced savings for the average individual due to the associated liquidity cost and did not help present-biased people save more. For such individuals, stronger incentives to start and continue making deposits are necessary to overcome self-control problems.

2 Responses

  1. “Self control problems,” seriously? Can we institute a requirement that all economists must try living on their country’s minimum wage for a year (with no other support) before receiving their diplomas?

    1. I’d suggest reading the paper. Poor or rich, we all have challenges thinking about the future, and controlling our impulses, and there’s a lot of experimental and other evidence to suggest that people who live on $1 or $2 or $5 have high returns to savings and investment, and that they could make small shifts in behavior (at low cost) that could make them much richer. Human frailties may be one reason they don’t. It’s the same for the non-poor, but the stakes are lower. You might be right, but I would say: fight the evidence, not the idea.

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