November 11, 2014
The Wisdom of the Group - FAI's Newest Briefing Note on Savings Groups, Research, and Product DesignBy Financial Access Initiative
Budgeting can be a daunting task for the poor. Poor families must stretch low, often-volatile income to meet basic consumption needs, and handle unforeseen expenses. Despite these challenges, the poor are able to save. They often do so in small amounts for short periods of time, adding to and spending down savings frequently. But short-term saving seldom results in long-term assets—it is not a tool for building up larger sums.
The poor have an acute need for savings tools to amass lump sums of money, yet the supply of useful products often falls short, in part because formal providers face barriers to entry in this market. Savings groups are (and have been) a traditional method used by households around the world to save. But what makes these groups effective? What value do they provide for members? Can lessons from savings groups inform the design of products that reduce cost, reduce risk, and help consumers save?
In a new briefing note by FAI's Alicia Brindisi and Julie Siwicki, The Wisdom of the Group: How Lessons from Savings Groups Can Guide Financial Product Innovation, we seek to answer these questions by drawing together recent studies. We focus on the savings group as a model for delivering products to address the market failure of inadequate formal products designed for poor households. Reviewing recent research, we extract the mechanisms that make savings groups effective. We then explore the potential to apply these factors to formal products that make sense for both providers and consumers.
We encourage you to comment below to share your thoughts on innovations around savings or feedback on our newest publication.