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

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:

Why Actions Don’t Accord with Intentions: Psychological Barriers to Savings 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

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

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

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

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

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.

Additional Tables

Measuring Impact

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