Linking Savings Behavior, Confidence and Individual Feedback: A Field Experiment in Ethiopia

Abstract

In this paper we investigate behavioral constraints to savings among smallholder farmers in rural Ethiopia. Increasing savings by overcoming such behavioral constraints has been documented to have positive effects on various outcomes such as health, education, and agricultural investments. We causally identify a strong increase in savings to a soft commitment device in the form of a moneybox with a regular savings plan. In our randomized field experiment, we also provide personalized feedback consisting of recommendations to self-set saving goals. These recommendations trigger increases in savings of up to 36 percent. In a detailed analysis of the behavioral characteristics driving these results, we find a strong and robust link between financial confidence and savings behavior. In particular, the savings of underconfident individuals are less than 2/3 of the savings of overconfident individuals-an association stronger than other behavioral traits such as risk-lovingness and present-biasedness. Remarkably, the effect of our personalized feedback is particularly strong for underconfident individuals. We discuss possible underlying mechanisms, rule out a set of alternative behavioral explanations, and address crowding-out behavior into other forms of saving. 1

Are the saving decision patterns of bank customers also clouded by psychological biases? Evidence from Ghana

“…This result supports the findings of Hair et al (2016) and Cohen (1988). The positive and significant relationship between psychological biases and bank customer savings decision supports the findings of Avdeenko et al (2019) and Mushinada and Veluri (2019). These results provide support to all nine hypotheses.…”

“…However, similar studies on decision-making of savers or bank customers is virtually absent. The closest one can find are literature on the influence of psychological biases on decision-making of bank credit officers with regards to issuing of loans (Moro et al , 2017; D'Angelo, 2018; Bacha and Azouzi, 2019), the propensity of people to spend instead of saving (Sotiropoulos and d’Astous, 2013), behavioural constraints to savings (Avdeenko et al , 2019).…”

“…Previous studies have shown that savers do not always act in their own best interest (Thaler and Bernartzi, 2007; Avdeenko et al , 2019). Some previous studies have reported that on the contrary, saving decisions are likely to be influenced by the amount, source, and nature of information people receive about saving.…”

Savings Goal Calendars as Soft Commitment Devices: Evidence from Small Business Owners in Uganda

“…Cole et al (2011) show that a subsidized bank account is more effective in increasing savings than a very short financial literacy training. Using an experiment in Ethiopia Avdeenko et al (2019) show that smallholder farmers provided with a moneybox and a regular savings plan increase savings.…”