What We Talk About When We Talk About Savings

A few weeks ago I attended the first day of the New England Universities Development Consortium’s annual conference. It’s a good place to see the latest economics research on a pretty wide variety of development topics, including microfinance. During one session that included presentations of four papers, I noticed that three were about “savings” but each, on closer inspection, had a very different definition of “savings.”

One paper was examining the demand for credit versus savings, but the savings in question was money set aside for less than two weeks. Another was evaluating a program to encourage savings among 8 and 9 year olds and measured account  balances at the end of a school semester. The third discussed savings accounts held in formal banks in Nigeria, with massive balances compared to the other papers.

So what are we talking about when we talk about savings? The core concept is funds that are set aside for future consumption. In countries where the majority of the population has bank accounts and formal sector jobs, there is generally a sense that “savings” is money set aside in a separate account from a transactional account, typically called a checking account (though outside the United States the “checking” designation is essentially obsolete). But as we’ve seen in the US Financial Diaries, money in “savings” accounts often isn’t held very long. And some people keep money in their checking accounts that they don’t intend to spend for a long while. If a person has only one formal account, but has a multiple mental accounts, does that make a certain amount of the funds in the single formal account “savings”?

And what about households who keep most or all of their funds in cash? There are a wide variety of ways that cash can be set aside in ways we could think of as savings: a different container or drawer, giving cash to a neighbor or relative to hold.  Similarly, economist Jenny Aker asks in reference to defining savings in her research in the DRCthat found savings among voucher recipients - "If it's in my pocket for a week, is that savings or is it that I just didn't find the quantities I wanted to [spend it on]?" 

Just as there’s not clear consensus on how money is held to be savings, there’s equally none on duration: how long does a sum have to be set aside before it becomes savings? In diaries from around the world we see people setting money aside for needs that are soon, but not right now. Households with low and volatile incomes need to set money aside on the days when they have it and use it on days when they don’t. Should this “high-frequency saving” as Angus Deaton has termed it, be counted as savings?

Which raises another issue: when do sums set aside stop being savings? If we measure savings based on whether they are set aside for the future, do they stop being savings within two weeks of when they will be spent? Or just at the moment they are spent? 

Then there’s the question of amount. Many savings evaluations, such as the Savings for Change program, count only a few dollars accumulated as savings. ROSCAs are generally designed to generate much larger sums under the moniker of savings. In developed countries, advocates often measure the adequacy of savings in terms of months without income that can be endured.

What about the frequency of deposits? In some situations we discount savings accounts that are “dormant” because no deposits are being made, but in others, say retirement accounts, months or years can pass without a deposit and we would still think of the amounts as savings.

While I don’t have a solution to the dilemma of what is or isn’t savings, I do have a modest proposal that would help, I think: whenever someone talks about savings, ask them to define exactly what they count as savings.