Problem

What roles do peer pressure and self-help groups have on savings behavior?

Research

The Center for Advanced Hindsight conducted research in Chile with low-income micro- entrepreneurs who earned an average of 84,188 pesos ($175) per month. Sixty-eight percent of participants did not have a savings account prior to the study. They were required to sign up for an account based on the savings group they were assigned to receive one of the following:

1. basic savings account with an interest rate of 0.3%.
2. basic savings account with an interest rate of 0.3%. The participants were also part of a self-help peer group in which they could voluntarily announce their savings goals and monitor their progress on a weekly basis.
3. high interest rate account with a 5% interest rate.

Results

Participants part of the self-help peer group (savings group 2) deposited 3.5 times more than others and their average savings balance was almost double of those who held a basic savings account. The high interest rate had a very little effect on most participants.

Why it matters

Small changes to the design of a savings scheme can have big effects on participation rates.