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Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile

Felipe Kast and Dina Pomeranz

No 20239, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D14 D91 G22 O16 (search for similar items in EconPapers)
Date: 2014-06
New Economics Papers: this item is included in nep-dev, nep-exp, nep-hap, nep-iue, nep-lam and nep-mfd
Note: DEV PE
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