Tying Odysseus to the Mast
Americans are notorious consumers, and the popular press is full of alarming
figures on the inability to save for a rainy day and retirement. Turns out we’re
not the only ones.
For example, Harris School Assistant Professor
Wes Yin reports on the spending habits of rural
Filipinos in “Tying Odysseus to the Mast:
Evidence from a Commitment Savings Product
in the Philippines.” Published in the Quarterly
Journal of Economics, the paper won the 2006
Certificate of Excellence from the TIAA-CREF
Institute. According to Yin, “combating a
temptation to spend can help to increase the
savings level of any person. For people in lesser
developed countries, even small savings increases
can greatly improve living standards.”
During the last few decades, developing regions
have been targeted for micro-loan programs.
“Peer-to-peer lending has helped poor people
enter the capital market and start businesses;
it has made a big difference in their lives,” Yin
explained. “We wanted to extend the concept
of micro-lending to micro-saving.”
This is exactly what Yin and his colleagues did
with the Green Bank of Caraga in rural
Mindanao, Philippines. Already in the business
of microfinance loans, the team helped the bank
develop SEED (Save, Earn, Enjoy Deposits) for
micro-saving accounts.
With a sprouting seed as its logo, the program
allowed participants to add to their savings
account but not withdraw from it until they had
reached a self-defined goal. Many chose goals
associated with a major event—a birthday,
religious celebration, or graduation. When a
participant enrolled, they could opt to deposit savings in an account at the bank or to make the
deposits at home into a locked money box. Most
chose the box, similar to a piggy bank, instead of
handing over the money. The key to the box was
held by the bank so the participant could put
money in, but not take it out.
According to Yin, the box itself helped draw
people into the program. “It’s a metal box with
the logo of SEED on the top, I still have one in
my office,” he says. Despite the lock, it took
willpower to continue with the savings program.
“It isn’t very sturdy,” says Yin, “you could smash
it open pretty easily.”
After six months, the average savings account of
SEED participants increased 234 pesos (approximately
$20), and by 12 months by 411 pesos
(approximately $35). Although the nominal
amounts were small, Yin says, “as a percentage of
prior formal bank savings, the impact was
significant.” The six-month savings increase
represents an average increase of 81 percentage
points. And, at the end of the prescribed
period, many kept their money in the program
suggesting that it will have a long-term effect.
|
