Whisper Words of Wisdom: How Financial Counseling can Reduce Delinquency in Consumer Loans

Roberto Alvarez, Alvaro Miranda and Jaime Ruiz-Tagle

Working Papers from University of Chile, Department of Economics

Abstract: We study the impact of a simplified financial counseling service provided by text messages, that includes images and videos, to low-income clients of a public bank in Chile. Using a randomized experiment and administrative data, we study the delinquency rates of individuals that received a set of messages about how to prevent and face shocks, and how to face present bias and social comparison. We also randomized the provision of an additional set of messages about concrete and practical options offered by the bank that individuals could take when they are at risk of defaulting. The estimated effect for addition of both types of financial counseling is a reduction in the loan delinquency rates of between 20% and 26%. The intervention also proved to be highly cost-effective allowing for large bank savings. We also find heterogeneous impacts, obtaining larger effects for young individuals, for men, for those with ex-ante higher probability to default, and for low-income individuals.

Pages: 78 pages
Date: 2023-12
New Economics Papers: this item is included in nep-ban, nep-exp and nep-nud
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