NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Felipe Kast, Dina Pomeranz

NBER Working Paper No. 20239
Issued in June 2014
NBER Program(s):   DEV   PE

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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Document Object Identifier (DOI): 10.3386/w20239

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