The Half Billion Dollar Question: What’s so important about savings anyway?

Last week I was a guest in Seattle at the Bill & Melinda Gates Foundation Global Savings Forum. The Forum brought together a diverse and thoughtful group of people working to push the global savings agenda. Stuart Rutherford and I had the chance to talk about lessons from the financial diaries and Portfolios of the Poor, and found that our job was made much easier given that several of speakers ahead of us on the agenda, including Melinda Gates, had already done an excellent job of communicating important messages about how the poor live their financial lives.

The big news out of the Forum was, of course, the Gates Foundation’s unveiling of their $500 million Global Savings Fund, a collection of grants to help create savings accounts for the poor. The grant builds on the argument that the poor can save, do save, and want to save – but they seek better ways to do so effectively.
During a break, I was talking to an academic friend who asked me – “Yes, but who would ever question that idea?” It was a reminder that it’s easy to forget how contentious the idea is that the poor can save.  A big part of the problem is how we think about poverty. The very idea of poverty as extreme, absolute deprivation reinforces the “saving is impossible” view.  Images and stories of desperate households scraping by to meet their most basic, immediate needs undermine the notion that the poor have room in their budgets to save.  The advocates’ view is too stark and broad-brushed – and it does damage to our understanding of the lives of the poor.  The best evidence I’ve seen suggests that households living on thin margins are thinking about the future all the time – and saving for it, at least for medium-term needs.

What we need is a shorter, sharper answer to the half billion dollar question: Why do the poor need savings accounts anyway?  Portfolios of the Poor is an important start. It provides language, logic, and illustrative evidence.  But we need evidence from a broader array of regions and communities; some will reinforce lessons from Portfolios, some will surely refute or extend lessons.  Other pieces of evidence, like the new randomized controlled trials from Malawi and the older one from Kenya, are also important.  But one example is a book, and the others are academic articles. 

Now that the push is on, savings advocates need a crisp paragraph on what the problem is that half a billion dollars is aiming to solve.