A Penny Saved: How Do Savings Accounts Help the Poor?

The Bill and Melinda Gates Foundation has been at the forefront of the pack in pushing for better access to savings accounts for poor households. A new paper from Jake Kendall helps us understand why access to better ways to save is such an integral part of financial access and building financial security.  He lays out the challenges faced in establishing the 'impact' on households of increased access to savings instruments and then hypothesizes about the impacts that one might expect from improved access to savings instruments. These include the creation of useful amounts  of cash, as a hedge against unforeseen disasters and as a useful buffer to help smooth daily consumption expenditures. He highlights the pros and cons of formal versus informal savings tools, comparing them along the dimensions of privacy, accessibility, reliability and the risks and costs of each. The note describes experiments undertaken by other researchers to investigate the impact of different types of savings products among individuals and the impacts on women in particular. Features of savings products that might increase uptake are proposed and areas for future research are highlighted including the need for impact studies to determine delivery mechanisms for savings products; a need for a comprehensive assessment of the effect of bringing previously unserved parts of the population into the formal economy and a need to assess how lessons can be extrapolated to a wider context (among different institutions and to different countries).

FAI is funded by the Bill and Melinda Gates Foundation.