Savings by and for the Poor: A Research Review and Agenda

Abstract

Latif Jameel Poverty Action Lab at M.I.T, and NBERThe poor can and do save, but often use formal or informal instruments that have high risk, high cost, and limited functionality. This could lead to undersaving compared to a world without market or behavioral frictions. Undersaving can have important welfare consequences: variable consumption, low resilience to shocks, and foregone profitable investments. We lay out five sets of constraints that may hinder the adoption and effective usage of savings products and services by the poor: transaction costs, lack of trust and regulatory barriers, information and knowledge gaps, social constraints, and behavioral biases. We discuss each in theory, and then summarize related empirical evidence, with a focus on recent field experiments. We then put forward key open areas for research and practice.JEL Codes: D12, D91, G21, O16

Entrepreneurial Saving Practices and Reinvestment: Theory and Evidence

“…In this respect, Banerjee and Duflo (2011) suggest that saving constraints in the developing world could imply poverty traps for low income households. Karlan, Ratan and Zinman (2013) state in their survey article that undersaving can have important welfare consequences, such as variable consumption, low resilience to shocks, and foregone profitable investments.…”

“…Finally, our paper relates to the literature on barriers to saving in developing countries (see Karlan, Ratan and Zinman (2013), for an overview). In addition to geographic, monetary and regulatory barriers, there are significant social constraints on saving behavior, partly related to the position of the entrepreneur within the household.…”