Which early withdrawal penalty attracts the most deposits to a commitment savings account?

Temptation and Commitment: A Model of Hand-to-Mouth Behavior

“…The view of illiquidity that we highlight in this paper helps us better understand a number of features of the data, as well as design policies to stimulate household saving. For instance, our model is consistent with a desire for illiquidity in saving accounts which has been documented in a number of experimental studies (Thaler and Benartzi, 2004;Ashraf, Karlan, and Yin, 2006;Beshears et al, 2020) and that households have difficulty saving in advance of predictable declines in income (Ganong and Noel, 2019). In the case of housing, our model is consistent with empirical evidence showing that homeownership plays an important role in household wealth accumulation (Di, Belsky, and Liu, 2007;Turner and Luea, 2009;LeBlanc and Schmidt, 2017;Kaas, Kocharkov, and Preugschat, 2019).…”

“…This evidence is difficult to rationalize using a traditional two-asset model, and yet, it has important implications for the design of targeted fiscal stimulus policies. In addition, our model is in line with a growing experimental literature which finds that households often save in low-return illiquid accounts despite the availability of liquid accounts with higher or equal returns (Thaler and Benartzi, 2004;Ashraf, Karlan, and Yin, 2006;Beshears et al, 2020). This type of saving behavior is difficult to explain with traditional models, but has important implications for our understanding of wealthy hand-to-mouth behavior, as well as policies designed to promote savings.…”

“…The authors find that this savings account is taken up by a large share of households and leads to increased savings. Similarly, Beshears et al (2020) conduct a lab experiment to study how individuals divide money between liquid and illiquid accounts. They find that illiquid accounts with higher early-withdrawal penalties attract more deposits.…”

Estimating Temptation and Commitment Over the Life Cycle

“…Ashraf, Karlan, and Yin (2006) find a significant increase in saving by consumers who purchased a commitment savings product. Beshears et al (2020) report that people who have access to both liquid and less liquid accounts, allocate more savings to the less liquid, commitment account. On the importance of housing as a commitment device, Angelini et al (2020) build a life-cycle model with temptation preferences and conclude that housing is heavily used as a commitment device in later life.…”

“…Beshears et al. (2020) report that people who have access to both liquid and less liquid accounts allocate more savings to the less liquid commitment account. On the importance of housing as a commitment device, Angelini et al.…”