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Mobilizing Savings through Products and Persuasion

Mobilizing Savings through Products and Persuasion. Nava Ashraf Harvard Business School Oct. 17, 2005. Based on evidence and experience from: Ashraf, Karlan and Yin

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Mobilizing Savings through Products and Persuasion

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  1. Mobilizing Savings through Products and Persuasion Nava Ashraf Harvard Business School Oct. 17, 2005

  2. Based on evidence and experience from: Ashraf, Karlan and Yin • “Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines” (Quarterly Journal of Economics, May 2006 volume) and • “Deposit Collectors” (2005 working paper) Available at: http://www.people.hbs.edu/nashraf/papers.html

  3. Self-Control Problems & “Time Inconsistency” Commitment Devices Bounded Cognition (ie, numbers/info overload): Mental Accounting Inability to follow through on plans: the role of memory and habits Reminders and Collectors Why Actions Don’t Accord with Intentions: Psychological Barriers to Savings

  4. Overcoming Barriers to Savings: Designing the SEED Commitment Savings Product • Withdrawal restriction • Either time-based (140) or amount-based (62) • Decided entirely by client • Deposit incentive • Ganansiya box – 167 out of 202 tookup  • Automatic transfer – 2 tookup  • Same interest rate as regular savings account • Hence, loss of liquidity is uncompensated

  5. Experimental Design • Sample frame: 1777 existing (or former) bank clients of a Philippine small, semi-rural, for-profit bank • Participants randomized individually into: • Treatment (Offered SEED), 50% • Marketing(Encouraged to Save), 25% • Control (Nothing), 25% • Marketing team from Bank visited one-on-one with T & M groups • Marketing & Control groups not allowed to take-up product

  6. Findings • 28% of those offered signed up for the SEED product • Time Inconsistent individuals, particularly women, were much more likely to take up • Significant Savings increase for those offered SEED compared to the Control group: • Average bank account savings increase for those assigned to treatment (ITT): after 6 months=46%; after 12 months=80% increase • Scaling up estimate by those who actually opened the account: increase in average savings (TOT): after 6 months =192%; after 12 months= 337% increase • Marketing Group shows some increases, but not statistically different from Control group

  7. Deposit Collectors • Offered Deposit Collection service for fee • Much smaller scale experiment: 5 treatment, 5 control villages • Find significant impact on increasing saving and lowering borrowing • Takeup variation we’re able to explain suggests that married women much more likely to take this up, but large part of take up is unexplained • Anecdotal evidence suggests deposit collection helps with planning follow-through

  8. Conclusion • Products designed with psychology in mind increase savings • Products need persuasion to sell them • Persuasion alone may not be as effective as combining persuasion with innovative products -- ways to act on the momentum that comes from being persuaded.

  9. Additional Tables

  10. Measuring Impact

  11. Measuring Impact

  12. *significant at 10%, **significant at 5%, *** significant at 1%

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