Savings Accounts to Borrow Less: Experimental Evidence from Chile

Dina Pomeranz and Felipe Kast

Journal of Human Resources, 2024, vol. 59, issue 1, 70-108

Abstract: Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. In a randomized field experiment with more than 3,500 low-income micro-entrepreneurs in Chile, we find that providing access to free savings accounts decreases participants’ short-term debt. 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.

JEL-codes: D14 D91 G21 O16 (search for similar items in EconPapers)
Date: 2024
Note: DOI: https://doi.org/10.3368/jhr.0619-10264R3
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:uwp:jhriss:v:59:y:2024:i:1:p:70-108

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