Around the world, people often have trouble saving as much as they would like due to lack of access to financial services, lack of commitment, or lack of attention. Researchers conducted a randomized evaluation to test whether people in rural Karnataka, India were likely to save more when information about their savings was shared with another member of their community, called a “monitor.” Monitors increased savings by 36 percent in the short term and savings were larger when monitors were either more central in the saver’s social network or more closely connected to the saver. These increases in savings persisted fifteen months after the program ended, and monitored savers reported that they could better respond to unexpected expenses.

Policy issue

Around the world, people often have trouble saving as much as they would like due to lack of access to financial services, lack of commitment, or lack of attention. However, several randomized evaluations have shown that increasing savings can lead to increased investment, income, and a greater ability to cope with unexpected expenses.

Past studies have shown that a person’s peers or reputation in their community can affect how much they save. Can the potential reputational benefits of being perceived as a financially responsible person motivate people to save more? How can peer monitors influence others’ ability to save?

Context of the evaluation

In rural areas of Karnataka, India, an individual can set up a savings account within their village at its post office or at banks within less than 3 kilometers of the village. Women often feel more comfortable performing transactions at local post offices and uncomfortable traveling to bank branches. In India, business correspondent banking, where bank agents travel to villages to provide direct in-home customer service including helping open accounts or deposit-taking, is common.

In Karnataka, surveys done as part of the research showed that reputation is important to job access and having more social connections increases the impact of information-sharing on others’ reputation. Most believed that, if a saver reported their savings progress to a monitor, the monitor would spread that information. They also perceived that a monitor with more social connections would spread more information about the saver’s progress, and that a saver with such a monitor would be more likely to achieve their savings goals. Moreover, a majority believed a positive savings reputation would lead to better employment prospects.

Among the study’s sample, 78 percent were women, the average age was 33, and 87 percent were married. Eighty-four percent had a Below Poverty Line card, and a quarter of households had a post office or bank account at the beginning of the study. Individuals who chose to participate in the study disproportionately came from low-income households with a desire to save.

Details of the intervention

Researchers conducted a randomized evaluation to test the impact of monitors on savings and whether the position of the monitor in the saver’s social network affected how much they saved in sixty rural villages in Karnataka, India. Before the study began, participants developed a personal six-month savings plan, with an average savings goal of about INR 1,540 (US$31 at the time of the study). Researchers randomized participants into one of the following groups:

Non-monitored savers (5 individuals per village, or about 300 households total): Individuals in this group were invited to save without any monitoring.
Monitored savers with random matching (17 individuals per village in 30 villages, or about 510 individuals): Individuals randomly assigned to have monitors were randomly matched with their monitors.
Monitored savers with choice of monitor (17 individuals per village in 30 villages, or about 510 individuals): Individuals randomly assigned to have monitors were able to choose their monitors.
Comparison group (147 individuals per village, or about 8,800 individuals total): Those in the comparison group were not invited to establish a savings plan or save with or without monitoring. However, these individuals still had access to open savings accounts on their own.

Of the 3,000 participants, those who were selected as savers were invited to a village meeting and, if they chose to attend, received assistance to review their finances, set a six-month savings goal, and open a formal account at nearby bank or post office. The bank branches were within five kilometers of each village. The accounts had no minimum balance or user fees, and required a minimum initial deposit of around INR 100 (US$2 at the time of the study).

Monitors were randomly selected from participating villages, so they varied in their position in the village social network; some were more central (a local elected leader, teacher, doctor, school headmaster, owner of the main village shop, etc.), and some were more proximate (had a direct relationship with the saver). Researchers measured which monitors were more central and proximate in the savers’ networks by collecting data on social interaction between all potential pairs of savers and monitors in the study’s sixty villages.

Researchers tracked savings using participants’ bank account passbooks and visited savers every two weeks to check their savings balances and to remind them of their saving goals. Researchers also informed monitors of their saver’s progress and goals. At the end of the six-month savings period, monitors were rewarded INR 50 (US$1 at the time of the study) if the saver reached half of their goal and an additional INR 150 (US$3 at the time of the study) if the saver reached their full goal.

Results and policy lessons

Savers assigned monitors saved more in both the short and long term. At the end of the six-month savings period, savers with monitors had saved 36 percent more on average relative to savers without monitors. Having a monitor who was more central or proximate in the saver’s social network further increased savings. The increased savings persisted over a year after the intervention and monitored savers reported being able to better respond to unexpected expenses.

Researchers suggest that the reputational benefits of being perceived as a financially responsible person could have motivated people to save more. Over sixty percent of monitors reported discussing the saver’s progress with other community members and forty percent of savers reported hearing from other community members that their monitors had passed on information on their savings progress. In villages where savers selected their own monitors, non-monitored savers also saved more, which suggests the presence of monitors in the village also affected the savings behavior of people who were not being monitored.

Taken together, these findings suggest that banks and other financial institutions could integrate goal setting and peer monitoring practices into their existing services to encourage clients to save more. In India, bank staff who visit homes to open accounts and collect deposits could also use these visits to help clients set savings goals and share information on their progress. However, these results are most relevant in settings where behavioral barriers such as inattention primarily prevent people from reaching their savings goals.

Breza, Emily, and Arun G. Chandrasekhar. "Social Networks, Reputation and Commitment: Evidence from a Savings Monitors Experiment." NBER Working Paper, July 2015.