How Poor Bangladeshi Households Behave Regarding Access to Commitment Savings Products

Abstract

Access to commitment savings products is known to increase poor households’ savings. In this paper we analyze the process through which households change their savings behavior, by exploiting a unique dataset released by SafeSave, a Bangladeshi microfinance institution that launched the Long Term Savings commitment product in 2009. First, we find that households increase their savings a few months before they open the commitment product. Then, distinguishing early takers (who take up the commitment account immediately) and late takers (who wait at least three months), we show that the increase of savings is driven by the later group. We interpret this as evidence that households prepare themselves before taking-up the commitment account. The existence of such preparation stage is in line with the “transtheoretical model of behavior change” (Prochaska and DiClemente, 1982; 1983) found in the psychological literature. Our paper suggests that poor households are more forward-looking than previously thought.