Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile

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Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile

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Title: Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile
Author: Kast, Felipe; Pomeranz, Dina Deborah

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Citation: Kast, Felipe, and Dina Pomeranz. "Saving More to Borrow Less: Experimental Evidence from Access to Formal Savings Accounts in Chile." NBER Working Paper Series, No. 20239, June 2014. (Revised June 2014. Featured by La Tercera. Harvard Business School Working Paper, No. 14-001, July 2013
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Abstract: Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. We find that the inability to save contributes to this indebtedness. Access to free savings accounts substantially decreases participants' propensity to use short-term credit. 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 saving more when given the choice. Take-up patterns suggest that requests by others for participants to share their resources are a key obstacle to saving.
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at http://nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#OAP
Citable link to this page: http://nrs.harvard.edu/urn-3:HUL.InstRepos:11508214
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