Responsible Finance Forum

Helping the Poor Save More

Dean Karlan
01 December 2010
Source:  Stanford Social Innovation Review

Poor people do have surplus money to save, find Massachusetts Institute of Technology (MIT) economists Abhijit Banerjee and Esther Duflo. Even people living on less than $1 per day spend money on many nonessential items such as alcohol, tobacco, and televisions. And when poor people increase their earnings, they spend only two-thirds of their windfall on food. These findings suggest that poor people are not just living hand to mouth; they do have funds to save.

So the question is, what financial products could help the poor lay away some of those funds for the future? In wealthier countries, financial institutions off er a panoply of products to help their clients set aside savings. But in poorer countries, microfinance institutions (MFIs) off er few savings options. Instead, most poor people stash cash under mattresses or invest in assets such as livestock, land, or informal social savings arrangements.3 Some do use local deposit collectors, but for a fee. As a result, very few poor people in the developing world put their extra money into savings accounts.

Yet many poor people (and rich people, too) say that they want to save more money. For instance, in a study my colleagues and I conducted in the Philippines, 79 percent of a rural bank’s clients reported dissatisfaction with their savings.