RT Journal Article
SR Electronic
T1 Savings Accounts to Borrow Less
JF Journal of Human Resources
FD University of Wisconsin Press
SP 70
OP 108
DO 10.3368/jhr.0619-10264R3
VO 59
IS 1
A1 Pomeranz, Dina
A1 Kast, Felipe
YR 2024
UL http://jhr.uwpress.org/content/59/1/70.abstract
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.