Daniel Rozas reflected recently on the moral component of encouraging savings among the poor. As Daniel points out, Victorian efforts at “reforming” the poor generally couched saving or thrift as a moral question. That moral component isn’t often found in today’s discussion of encouraging savings.
It’s an interesting observation and worth thinking about. But while thinking about it, we should also consider the morality on the other side of the equation. Are there ethical concerns with encouraging savings? I can think of a few.
First, there is an issue that Daniel highlights: class imperialism. Put another way, how much should the wealthy be able to dictate to the poor how they live their lives? I think there are few who yearn for prior days when poverty was primarily viewed as the result of moral failings, failings which could be overcome by overseers all too often literally attempting to whip the poor into shape.
Of course there are ways to encourage the virtue of thrift without resorting to an imperialist mode. But the use of moral suasion can have unexpected downsides. Putting aside the unanswered question of efficacy, there is experimental evidence on the impact of stress on decision-making. Adding the moral argument would likely add another element of stress to the choices of poor: “Will spending rather than saving this money make me a bad person? Is it the ‘wrong’ thing to do?” Dean Spears has conducted a set of experiments in the lab and in the field that provides evidence that the difficulty of economic decision making for the poor has a negative impact on cognitive control. In simpler terms, the higher stakes of the poor’s decision making accumulates to erode the quality of decision-making. There is therefore a moral concern that if we use moral suasion to make the poor’s economic decision-making even more high stakes then we could be further impairing their ability to make good decisions.
There are other ethical questions to consider. One is the source of savings—which expenditures would the poor forego in order to save. The common assumption is that the poor could spend less money on such items as tea, festivals and the like. Such expenditures certainly seem wasteful at first glance. But they also account for much of the pleasure of daily life. There is a danger of an implicit message that the poor should put off or at least limit how much they enjoy life until they reach the middle class.
Avoiding these ethical concerns underlies the research about commitment savings. Commitment savings avoids imperialism or setting outside limits on savers enjoyment of life by allowing them to set their own goals. Those ethical concerns largely fade away as long as products are simply helping savers meet their own goals. Commitment savings also reduce the cognitive burden of economic decision-making by operating as a “set-it and forget-it” set of choices.
But there is a couple of worries about commitment savings that bear thinking about. In one of the experimental tests of commitments savings, work done in Malawi by Brune, Gine, Goldberg and Yang, there was a suggestion of a potential dark side that definitely bears further inspection. The experiment found substantial benefit to a commitment savings product—savings increased and translated into more spent on agricultural inputs the following season, higher yields, and higher household expenditures following the next harvest. But one of the ways the savings was accomplished is that the commitment savings accounts helped participants to shield savings from their social networks. Savers, who otherwise would have contributed in some way to the needs of family and neighbors, didn’t.
There is a lot of work from various domains which examines the role social networks play in mitigating the effects of poverty. We need to take the ethical concern of the detrimental effect commitment savings may have on the functioning and effectiveness of such social networks seriously. It would be immoral to push commitment savings without understanding, and finding ways to mitigate, those negative consequences.
Secondly, one of the challenges in poor communities is not just the lack of funds but the lack of liquid assets at any given point in time. While there are certainly dangers to liquid assets, dangers that the poor mitigate by investing in livestock or jewelry. If commitment savings take off, they could further drain liquidity from poor communities with unknown effects.
The ultimate question then is: How and how much should we be encouraging savings in poor communities. There are moral and ethical concerns on both sides of the ledger. And a lot we still have to learn before providing a definitive answer to that question.