RT Journal Article
SR Electronic
T1 Savings Accounts to Borrow Less
JF Journal of Human Resources
JO J Hum Resour
FD University of Wisconsin Press
SP 0619-10264R3
DO 10.3368/jhr.0619-10264R3
A1 Pomeranz, Dina
A1 Kast, Felipe
YR 2022
UL http://jhr.uwpress.org/content/early/2022/03/01/jhr.0619-10264R3.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 over 3,500 low-income micro-entrepreneurs in Chile, we find that providing access to free savings accounts decreases participants’ shortterm 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.