More Than Good Intentions by Dean Karlan

Author:Dean Karlan
Language: eng
Format: epub
Publisher: Penguin Publishing Group
Published: 2016-04-18T13:21:54+00:00

Getting the Poor to Save

The fact is that most poor people do not have savings accounts, commitment-based or otherwise, and conventional wisdom has a simple explanation for this. They’re not saving because they spend every last cent on the bare essentials. (They’re poor, remember?)

I’ll admit, there is something attractive about that reasoning. It’s clean and it makes a kind of intuitive sense. But it leads to a dead end. If not-saving is simply an inescapable fact of poverty, then even if we find ways to help poor people control their impulses and resist temptation spending, we won’t fix the root problem. They still won’t have anything left after taking care of their immediate needs. So we should not waste time and money finding better ways for them to save.

Fortunately, we need not accept that line of reasoning on faith; we can test it in the real world.

While I was studying at MIT, I met Mary Kay Gugerty, then a Ph.D. student at the Harvard Kennedy School of Government. Mary Kay was writing her dissertation on informal savings clubs that Kenyan women used to overcome self-control problems. I had also been thinking a lot about temptation—not just with savings, but in other areas of life as well. We went to talk with David Laibson, a behavioral economist at Harvard who had done some pioneering research on self-control.

We went into the meeting hoping to find out how we could test his theories, but we walked out with a much more practical question: How can we use these theories to improve people’s lives? Specifically, can we design a product that will help solve the temptation problem?

A week later, Mary Kay and I joined up with Nava Ashraf, another graduate student, and started looking for a product to test and a place to test it. We wrote up a brief proposal and blasted it out to our e-mail list. It turned out a lot of people were interested in temptation and self-control. We got dozens of responses.

Nava and I went to the Philippines in August 2002 to follow up on some of them. John Owens, manager of a USAID initiative to assist rural banks, and microfinance guru, set up a meeting with a dozen potential partners. I’ll always remember that trip for one simple reason: Nava and I both had temptation on the brain. I thought about it every morning, when I had to fight to pass up a breakfast of French toast and banana bread while Nava effortlessly opted for a healthy bowl of fruit and cup of yogurt. She thought about it when we talked about clothes. It came out that I hadn’t spent more than ten dollars on a shirt as long as I could remember (I usually wear tie-dyes and batiks from West Africa or kurtas from India), while Nava had to hide her credit cards from herself to keep from splurging.

So we had a lot to say when we met with the banks we might work with. The very

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