Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device

Abstract

We test the effectiveness of self-help peer groups as a commitment device for precautionary savings, through two randomized field experiments among 2,687 microentrepreneurs in Chile. The first experiment finds that self-help peer groups are a powerful tool to increase savings (the number of deposits grows 3.5-fold and the average savings balance almost doubles). Conversely, a substantially higher interest rate has no effect on most participants. A second experiment tests an alternative delivery mechanism and shows that effects of a similar size can be achieved by holding people accountable through feedback text messages, without any meetings or peer pressure.

Savings By and For the Poor: A Research Review and Agenda

“…5 The one LDC-setting study in this vein (Schaner,3 Offering a two-hour financial literacy training, on the other hand, has a very modest effect, and is less than half as cost-effective as the higher subsidies . 4 Kast et al (2012) also finds very small price elasticity with respect to a change in savings yield from 0.3 to 5 percent. The sample frame in that study is current borrowers from a microlender, with loans at about 45 percent APR, i.e., the change in savings yield is strictly inframarginal.…”

Why Don't the Poor Save More? Evidence from Health Savings Experiments

“…Karlan et al (2011) provide experimental evidence from a multiplicity of countries that simple reminders to save can increase saving rates by about as much as access to commitment savings products. Likewise, Kast et al (2011) shows that interventions to encourage deposits (through peer groups or text message reminders) can increase savings rates. Our evidence is consistent with the presence of both self-control and inattention problems, but suggests that, for most people, these barriers can be alleviated without resorting to services such as formal commitment savings accounts or reminders.…”

How to Raise Household Savings in LAC: Constraints and Best Practices

“…In the Philippines, interventions aimed at reducing these transaction costs also have positive but more modest effects in the adoption of formal saving accounts (Ashraf, Karlan and Yin, 2006). On the other hand, better financial conditions such as higher interest rates have a positive but limited effect on the adoption and usage of formal saving accounts in Chile (Kast, Meier and Pomeranz, 2012) and the Philippines . Even when the marginal yields introduced are large and subsidized, take-up rates often respond little to these offers.…”

“…In Chile, a similar model of self-help peer groups was implemented among micro entrepreneurs as a commitment device to encourage precautionary savings (Kast, Meier and Pomeranz, 2012). Results from their experimental design show that the number of deposits grew by about 350 percent and that saving balances almost doubled among clients in the treatment group.…”

“…Though penalties can also be used to deter individuals to miss an installment, these are rarely implemented, especially at the launching stages of the product. While some products may encompass a social commitment component as in the case of Kast, Meier and Pomeranz (2012), many others rely on individual commitments and/or labelling to help users follow their saving plan.…”