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Saving more to borrow less: experimentalevidence from access to formal savings accounts in Chile


Kast, Felipe; Pomeranz, Dina (2014). Saving more to borrow less: experimentalevidence from access to formal savings accounts in Chile. NBER working paper series 20239, National Bureau of Economic Research.

Abstract

Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. We find that reducing barriers to saving through access to free savings accounts decreases participants' short-term debt by about 20%. 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.

Abstract

Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. We find that reducing barriers to saving through access to free savings accounts decreases participants' short-term debt by about 20%. 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.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:D14, D91, G22, O16
Language:English
Date:June 2014
Deposited On:26 Apr 2017 12:22
Last Modified:21 Nov 2017 19:30
Series Name:NBER working paper series
Number of Pages:50
Additional Information:Auch erschienen als Harvard Business School Working Paper No. 14-001: http://www.hbs.edu/faculty/Pages/item.aspx?num=45072
Free access at:Official URL. An embargo period may apply.
Official URL:http://www.nber.org/papers/w20239
Related URLs:http://www.nber.org/papers.html
http://www.hbs.edu/faculty/Pages/item.aspx?num=45072

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