UC Berkeley

The article reports on the results of an experiment that introduced a new set of commercial products based on planning and reminders to help microfinance borrowers from Guatemala's largest public-sector bank build their savings. Behavioral explanations for the difficulty of saving focus on the group of individuals who wish to save but prove unable to do so. The bank had no intention and no legal means of enforcing any of these self-commitments. Hence, these savings plans offer individuals a psychological means of committing themselves to a savings trajectory with no financial penalties for failing to implement it. Despite a wealth of recent empirical work demonstrating the efficacy of hard commitment, there are at least two reasons why self-commitment may provide a more attractive alternative in practice. Self-commitment, if effective at promoting savings, retains broad latitude for households to use savings to protect themselves from shocks even during the asset-accumulation phase.