How Debit Cards Enable the Poor to Save More

Pierre Bachas, Paul Gertler, Sean Higgins, Enrique Seira

NBER Working Paper No. 23252
Issued in March 2017, Revised in October 2018
NBER Program(s):Development Economics

While formal savings can have a number of positive impacts for the poor, savings and active account use remain low. We study an at-scale natural experiment in Mexico in which debit cards are rolled out to beneficiaries of a cash transfer program, who already received transfers directly deposited into a savings account. Using administrative account data and household surveys, we find that after two years with a card, beneficiaries accumulate a savings stock equal to 2 percent of annual income. This effect size is larger than the impact of other interventions studied in the savings literature. We show that the increase in formal savings appears to be an increase in overall savings, financed by a voluntary reduction in current consumption. Debit cards increase account usage and savings through two mechanisms: first, they reduce the transaction costs of accessing money in the account; second, they reduce monitoring costs, which leads beneficiaries to check their account balances frequently and build trust in the bank.

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Document Object Identifier (DOI): 10.3386/w23252

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