This study examines the impact of monitoring interventions that encourage individuals to save, and their impact on businesses, household welfare and mitigation of financial shocks.
Historically, behavioral economics has highlighted three obstacles to good savings (a) inattention, (b) time inconsistent preferences, (c) temptation. LEAD researchers’ explored two interventions in two phases to help individuals overcome these behavioral biases and increase their savings balances. This study was conducted to analyse and understand how savings impacted businesses, household welfare, helped in the mitigation of shocks and understand through a set of behavioural questions the beliefs of the respondent saver about other savers in their village. The study involved two phases with the following objectives:
- Phase 1 – to understand whether monitoring helps to increase saving balances, if so, which kind of monitors would be most effective based on a) the method of assignment of monitors (either endogenous or random) b) the position of the monitor in the respondent’s social network.
- Phase 2 – to assess whether savings habits persisted over time and how savings might have been used to mitigate shocks and for building assets.
A total of 1270 respondents participated in the study. Phase 1 involved assisting respondents in opening accounts and setting reachable goals, as along with conducting regular visits to respondent households. Some savers were either randomly assigned or allowed to choose monitors from their community, who were made aware of the saver’s progress on a regular basis. In phase 2, researchers administered an endline survey, which included open-ended questions on the success or failure in saving, relationship between savers and monitors and other such issues, to all saver households.
Average monitors increase savings by 35%. A one-standard-deviation more central monitor increases savings by 14%; increasing proximity from social distance three to two increases savings by 16%. The increased savings persist over a year after the intervention’s end, and monitored savers better respond to shocks. Information flows. 63% of monitors tell others about the saver’s progress. 15 months later, others know more about the saver’s progress and believe she is responsible if the saver was assigned a more central monitor.
The study points to the idea that reputations matter and they matter heterogeneously within the broader village network. The experiment provides a context in which agents could respond to our monitor treatment using an important economic vehicle – formal savings – that itself stood to generate real benefits to our subjects. That the increased savings allowed our subjects to better respond to health and household shocks indicates that the monitor treatment effect was strong enough not only to change savings behavior directly but to also yield measurable and meaningful economic consequences over the next year. Further, the study sheds light on whether specific peers play this role more effectively than others and whether individuals are able to successfully identify optimal monitors.