Savings
It would seem self-evident that poor families can’t save. But that turns out to be wrong.
New & Notable in SavingsRSS
FAI publications
Using cross-country data from previous research studies the authors estimate the size of the world’s adult population that doesn’t use formal (and semiformal) financial services. They find that over half of the world's population (2.5 billion adults) did not use formal financial services for either saving or borrowing purposes and that nearly 90% of this population lives in Asia, Africa, Latin America and the Middle East. They analyze the effects that various drivers of inclusion (including socio-economic status, a country’s level of urbanization and the presence of an effective regulatory and policy environment) have in enabling the provision of financial services and find that improvements in these factors can help to serve low income populations on a larger scale.
High quality evidence on the state of financial access around the world is advancing rapidly, as the chapters of this book illustrate. A happy consequence of increasing knowledge is the ability to better recognize what we don’t yet know. Here are ten questions, some micro, some macro, that need answers if we are to make informed decisions on how to improve financial access.
This reading list includes suggested background reading in the areas of dynamic optimization and the neoclassical benchmark; evidence from high-frequency data; returns to capital; credit innovations and microfinance; saving; property rights and land reform: and social enterprise.
External publications
The Focus Note “Emerging Perspectives on Youth Savings”examines the role of finance in the lives of low-income youth in developing countries. As the first CGAP publication on the topic of youth savings, the paper presents the latest perspectives on the importance of savings for the youth market segment.
The paper focuses on the opportunities and challenges of offering savings services to youth from the perspectives of policy makers and financial service providers. The premise behind the policy case for offering savings accounts to youth is straightforward: youth savings can promote asset-building, instill good financial habits and improve a country’s overall gross savings rate. The business case for financial service providers is gaining loyal, long-term customers who will use a range of products over their lifecycle.
With relatively few existing documented cases on providing youth savings services in a profitable manner through the private sector, the paper brings together many disparate areas of research from a number of different countries.
The paper provides several practical considerations for policy makers and providers when targeting the youth market. While more data on the social impact of youth savings is needed, policy makers can take a test-and-learn approach to reducing barriers for the private sector to deliver youth savings; coordination among government ministries is important in this regard, ideally within a comprehensive youth policy. On the financial service provider-side, there also exists a similar need for innovation and experimentation around understanding the youth market – and whether this customer segment is profitable in the long run.
Using data from a field experiment in Kenya, we document that providing individuals with simple informal savings technologies can substantially increase investment in preventative health and reduce vulnerability to health shocks. Simply providing a safe place to keep money was suffcient to increase health savings by 66%. Adding an earmarking feature was only helpful when funds were put towards emergencies, or for individuals that are frequently taxed by friends and relatives. Group-based savings and credit schemes had very large effects.
Social networks are understood to play an important role in smoothing consumption risk, particularly in developing countries where formal contracts are limited and financial development is low. Yet understanding why social networks matter is confounded by endogeneity of risk-sharing partners. This paper, first, examines the causal effect of close social ties between individuals on their ability to informally insure one another. Second, we examine how the interaction of social proximity and access to savings affects consumption smoothing. Theoretically, they could be complements or substitutes. Savings access may crowd out insurance unless social proximity is high, in which case it benefi ts the highly connected. Or savings may crowd out risk sharing among the highly connected while helping the less connected smooth risk intertemporally. By conducting a lab experiment in the fi eld in Karnataka, India, we study the relationships between inability to commit to insurance, ability to save, and social proximity. We find that limited commitment reduces risk sharing, but social proximity substitutes for commitment. On net, savings allows individuals to smooth risk that cannot be shared interpersonally, with the largest benefi ts for those who are weakly connected in the network.
