PT  - JOURNAL ARTICLE
AU  - Pomeranz, Dina
AU  - Kast, Felipe
TI  - Savings Accounts to Borrow Less
AID  - 10.3368/jhr.0619-10264R3
DP  - 2024 Jan 01
TA  - Journal of Human Resources
PG  - 70--108
VI  - 59
IP  - 1
4099  - http://jhr.uwpress.org/content/59/1/70.short
4100  - http://jhr.uwpress.org/content/59/1/70.full
AB  - 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.