NBER WORKING PAPER SERIES
WHY DON'T THE POOR SAVE MORE? EVIDENCE FROM HEALTH SAVINGS
EXPERIMENTS
Pascaline Dupas
Jonathan Robinson
Working Paper 17255
http://www.nber.org/papers/w17255
NATIONAL BUREAU OF ECONOMIC RESEARCH
1050 Massachusetts Avenue
Cambridge, MA 02138
July 2011
We thank two anonymous referees, Nava Ashraf, Esther Duflo, Sarah Green, Seema Jayachandran,
Anthony Keats, Erik Snowberg, John Strauss and Diego Ubfal for helpful comments, as well as numerous
seminar audiences. We are grateful to the California Center for Population Research for funding, to
IPA Kenya for administrative assistance coordinating the project, and to Jacob Bor, Sefira Fialkoff,
Katie Hubner, Stephanie Ruiz and Kim Siegal for research assistance in the field. All errors are our
own. The views expressed herein are those of the authors and do not necessarily reflect the views of
the National Bureau of Economic Research.
NBER working papers are circulated for discussion and comment purposes. They have not been peer-
reviewed or been subject to the review by the NBER Board of Directors that accompanies official
NBER publications.
© 2011 by Pascaline Dupas and Jonathan Robinson. All rights reserved. Short sections of text, not
to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including
© notice, is given to the source.
Why Don't the Poor Save More? Evidence from Health Savings Experiments
Pascaline Dupas and Jonathan Robinson
NBER Working Paper No. 17255
July 2011, Revised February 2012
JEL No. D14,D91,O16
ABSTRACT
Using data from a field experiment in Kenya, we document that providing individuals with simple
informal savings technologies can substantially increase investment in preventative health and reduce
vulnerability to health shocks. Simply providing a safe place to keep money was sufficient to increase
health savings, through a mental accounting effect. Adding an earmarking feature was only helpful
when funds were put towards emergencies; earmarking for preventative health reduced savings on
average, because the liquidity cost of tying up money was too great. Providing social pressure and
credit through a ROSCA-based savings scheme had very large effects.
Pascaline Dupas
Department of Economics
Stanford University
579 Serra Mall
Stanford, CA 94305-6072
and NBER
pdupas@stanford.edu
Jonathan Robinson
Department of Economics
University of California, Santa Cruz
457 Engineering 2
Santa Cruz, CA 95064
jmrtwo@ucsc.edu
1 Introduction
In developing countries, the returns to many types of investments in human or physical
capital appear to be high, yet investment levels remain quite low. For example, it has been
estimated that 63 percent of under-five mortality could be averted if households invested in
readily available preventative health products (Jones et al. 2003). Why don’t people make
these investments? While credit constraints are the most obvious culprit, and while recent
evidence does suggest that relieving credit constraints can increase investments in bednets
(Tarozzi et al. 2011) or clean water connections (Devoto et al. 2011), the upfront costs of
many preventative products (such as bednets) are not massive. Households should be just
as able to gradually save up for such investments as to take out loans and gradually pay
them back.
To understand why the poor are constrained in their ability to save, we designed a field
experiment in rural Kenya in which we randomly varied access to four innovative saving de-
vices which differed in the degree of commitment they offered. One saving technology offered
only a very soft form of commitment through mental accounting. Two other products offered
stronger commitment through earmarking. A final product, in addition to earmarking, of-
fered credit as well as a social commitment to make regular contributions. By observing the
impact of these various technologies on asset accumulation, and by estimating which types
of people benefit most from them, we can identify the key barriers to saving in our study
context.
Though the saving technologies we study could be relevant for any number of purposes,
we designed them around enabling savings for health investments. The reason for this is
that poor health is very common in Kenya (as in much of Sub-Saharan Africa), so that there
are likely substantial welfare effects of increasing savings for health.
Our main outcomes are (1) take-up of the savings technologies; (2) investment in preven-
tative health products; and (3) whether households are able to deal with health emergencies
when they arise. We compare the four treatment groups to a control group which received
the same encouragement to save for health but was not offered a savings technology. Our
primary data are follow-up surveys conducted after 6 and 12 months with 771 individuals.
We supplement this with a longer-run follow-up conducted about three years later with a
random subsample.
Our first main result is that the take-up of all four saving technologies was very high.
After 12 months, the take-up rate for the least popular technology was 66%, while it was
97% for the most popular. These take-up figures suggest that the primary appeal of the
devices is in their common feature: providing a safe and designated place to save money for
1
a specific goal. The main mechanism through which the products increased health savings
appears to be mental accounting. In follow-up surveys, respondents reported that once the
money was set aside, they had the strength to resist “unplanned expenditures,” including
transfers to friends and relatives and luxury spending. This mental accounting channel is
why people were able to save even in the product in which the money was readily accessible.
Turning to impacts on health investment, our second main result is that earmarking
for preventative health investments was ineffective for the average individual. By contrast,
earmarking for health emergencies increased people’s ability to cope with shocks. The reason
that earmarking for preventative health was not an attractive feature is that earmarking
brings with it the substantial liquidity cost of not being able to access money when it is
needed for other purposes (in particular health emergencies). By contrast, earmarking for
health emergencies allows precisely the types of emergency withdrawals that people are most
concerned about, and so was highly valued.
Our third main result is that providing credit and social pressure to make deposits for
health in a group setting (in this case, a Rotating Savings and Credit Association, or ROSCA)
is a highly effective means of increasing health investments.
We provide further but somewhat more speculative evidence on the savings barriers that
these devices helped overcome by examining how impacts varied with background charac-
teristics. First, we find that individuals who, at baseline, were the most “taxed” by their
social networks (people who were giving assistance to others but who received no assistance
in return) are the only subgroup which continued to save when deposits were earmarked for
preventative health. We conjecture that the demands on their income are strong enough
that limiting liquidity is not as costly for them. While we cannot entirely rule out that the
differential effects we see for these “providers” are potentially driven by some unobservable
characteristics correlated with provider status, it is worth noting that our findings are con-
sistent with a number of recent studies in Sub-Saharan Africa, which suggest that people
might be willing to pay to avoid demands from others.
1
Second, our results suggest that time-inconsistency might be another important con-
straint. As might be expected, those with time-inconsistent preferences (who make up about
1
Baland et al. (2007) present evidence from Cameroon consistent with a model in which middle-class
individuals take on (costly) loans they do not need as a way to signal poverty and avoid requests for financial
help from friends and relatives. Similarly, a recent experimental study in Western Kenya finds that women
are willing to pay a substantial cost (in the form of either a fee or foregone returns) in order to hide income
from their relatives (Jakiela and Ozier 2011). This is consistent with Platteau (2000), who shows that there
exist strong social norms in West Africa which necessitate that an individual provides support to friends and
relatives if she is asked for money and has cash on hand. However, our results do contrast somewhat with a
recent field experiment in Ghana, which finds no evidence that external pressure to share is responsible for
the inability of many small entrepreneurs to invest cash grants in their business (Fafchamps et al. 2011).
2
16% of our sample) did not benefit from gaining access to a simple savings device in which
withdrawals were not restricted. They also did not benefit from earmarking, but did save in
the product which offered credit and social commitment to make deposits. We conjecture
that this combination worked because the credit aspect induced people to begin saving, and
the social pressure aspect compelled them to make regular deposits. These results suggest
that people with such preferences may need products which not only earmark savings for a
specific purpose but which also commit them to make regular deposits. That some form of
commitment is needed for people with time-inconsistent preferences resonates well with evi-
dence from multiple settings – from retirement savings in the US (Thaler and Benartzi 2004;
Choi et al. 2011) to bank savings in the Philippines (Ashraf et al. 2006a) to agricultural
investments in Kenya (Duflo et al. 2010) and Malawi (Brune et al. 2011). Our contribution
is to show that, in the absence of a direct deposit or deposit collection feature, earmarking
alone is not sufficient to meaningfully increase savings among time-inconsistent individuals.
This is consistent with Ashraf et al. (2006a), who find that many time-inconsistent individ-
uals in the Philippines are “sophisticated” enough to sign up for a commitment device, but
not enough to use it once they have it.
Third, we also find some tentative evidence of intra-household barriers to individual
saving. We find somewhat larger effects for married women than for unmarried women. Here
again, we cannot entirely rule out that this is driven by some other characteristic correlated
with marital status, but we note that the heterogeneity we observe is consistent with evidence
of savings misallocation due to intra-household heterogeneity in time preferences found in
Kenya by Schaner (2011). It is also related to experimental evidence from the Philippines
presented in Ashraf (2009), which showed that hiding money from one’s spouse is desirable
under certain intra-household decision-making structures.
All in all, our results suggest that devices which simply help individuals harness the
power of mental accounting are beneficial to the majority of people in our sample. Since
much of the value of a savings product appears to be in the mental accounting it provides,
a product which does not severely limit liquidity is preferred to one that does, especially for
people living in an environment in which income shocks are common, such as rural Kenya.
Our results contribute to a fast-growing literature on savings in developing countries. It
has by now been well established empirically that the reason for low observed savings rates
is not just that the poor are simply “too poor to save.”
2
Several studies have investigated
2
For example, Shipton (1990) describes how people in the Gambia make their own wooden lockboxes,
which they smash open once they have reached their savings goal. Collins et al. (2009) examine a wealth of
other informal saving tools used by poor families in Bangladesh, India, and South Africa. Rutherford (2000)
documents how poor households often report wanting to save more. Banerjee and Duflo (2007), looking at
detailed household survey data form 13 countries, find that even extremely poor households do not use all
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