Savings defaults and payment delays for cash transfers: Field experimental evidence from Malawi

Abstract

Financial products and transfer schemes are typically designed to improve welfare by helping individuals follow through on their intertemporal plans. We implement an artefactual field experiment in Malawi to test the ability of households to manage a cash windfall by varying whether 474 households receive a payment in cash or through direct deposit into pre-established accounts at a local bank. Payments are made immediately, with one day delay, or with eight days delay. Defaulting the payments into savings accounts leads to higher net deposits into bank accounts, an effect that persists for a number of weeks afterwards. However, neither savings defaults nor payment delays affect the amount or composition of spending, suggesting that households manage cash effectively without the use of formal financial products.

Saving by Default: Evidence from a Field Experiment in Rural India

“…Finally, we would like to emphasize two studies that are conducted in Malawi and related to ours. First, Brune et al (2016b) study the impact of a onetime payment that was allocated into a bank account or in cash. Contrary to our study, the payment is large and unanticipated.…”

Pay Me Later: Savings Constraints and the Demand for Deferred Payments

“…Prior studies have studied the impacts of providing subsidized bank accounts (Prina, 2015;Dupas and Robinson, 2013a;Dupas et al, 2018), using automatic deposits (Breza, Kanz and Klapper, 2020;Somville and Vandewalle, 2018), setting defaults (Brune et al, 2017;Blumenstock, Callen and Ghani, 2018) or offering commitment savings schemes (Ashraf, Our results should be interpreted cautiously given the potential measurement error in this proxy for selfcontrol.…”

Experience in Financial Decision-Making: Field Evidence from Malawi

“…Of the 742 households that opened subsidized accounts, 600 were randomly chosen in April 2015 to participate in another field experiment designed to induce account usage. In particular, the experiment varied whether households received a large (MK 25,000, or about USD 67) transfer, and whether the transfer was made in cash or directly deposited into the subjects' accounts (see Brune et al, 2017). The transfer increased the number of transactions that participants made at NBS.…”

“…In 2015, among the households that opened the subsidized account, some were randomly chosen to receive a MK 25,000 (USD 67) windfall payment (see Brune et al, 2017 for details).…”