Study Overview
While bank accounts play a crucial role in everyday economic activities in high-income countries, fewer than 40% of the households in low-and middle-income countries (LMIC) have one. Instead, most poor households rely on informal, costly and risky alternatives and would benefit from access to a range of the financial services offered by formal institutions. Savings, in particular, facilitate investment in productive activities, education and household durables, and help smooth out income shocks. In light of these advantages, many LMIC governments and international organizations have set themselves the goal of improving these population groups’ access to formal financial institutions. One reason why poor households may not keep their savings in a bank account is that they do not trust that the money will be available to them when they want it. Trust is an essential element of economic transactions and an important driver of economic development.
Study Results
We randomly assigned beneficiaries of a conditional cash transfer program in Peru to attend a 3 h training session designed to build their trust in financial institutions. We find that the intervention: (a) increased trust in banks, but had no effect on financial literacy, and (b) increased savings over a ten month period. The increase in savings represents a 1.4 percentage point increase in the savings rate out of the cash transfer deposits, and a 0.4 percentage point increase in the savings rate out of household income.
Intervention: Training
Populations: low income households
News & media
Building trust: Evidence from workshops on increasing savings in Peru
March 30, 2020
Our results suggest that trust in financial institutions is an important factor in encouraging poor households to hold their savings in bank accounts. Trust is also likely to increase the effectiveness of other interventions, such as those involving a reduction in transaction costs or increased returns, in terms of influencing savings.