When unexpected expenses arise, such as a medical emergency or a home repair, having a savings reserve can be a significant help. However, having money on hand at times of need is particularly difficult for people with lower incomes, who may as a result face a tougher road to managing unforeseen expenses. Building and maintaining short-term savings enables people to manage financial shocks that may arise or invest in large purchases that have long-term benefits.
In Mexico, 47% of people had a bank account in 2018 and only 42% of these people use their accounts for saving, according to a national survey. Low-income Mexicans who have a job in the informal sector, such as corner store and food stall owners, are less likely than others to have a savings account and are instead much more likely to rely on informal mechanisms for storing savings, like keeping money at home or using community-based savings groups where they pool their money with family and friends. While many people in Mexico don’t trust formal financial institutions, informal methods can be very risky ways to save due to theft and the ease of spending money that is kept at home.
Some trusted financial providers in the country, such as CAME, a large microfinance institution that offers microloans to small business owners who work in the informal sector and often have low incomes, are seeking to shrink this savings gap. CAME created a new savings account to help clients not only leverage microloans but also build up savings reserves for the future. However, only a small percentage of eligible people opened and began making deposits in one of the new savings accounts.
What’s more, low take-up and usage rates represent a significant challenge for achieving the economies of scale needed for savings services to be financially sustainable, and therefore attractive, for providers. We partnered with CAME to identify behavioral barriers preventing clients from using new beneficial savings products, and design solutions to help them get started on the path to growing a savings reserve. Because CAME clients have to open accounts in person, we specifically targeted and measured the impact of our work to clients who regularly visit branches.
Our intervention increased uptake of accounts from 1% to 15% at treatment CAME branches. The intervention included a goal-setting activity and a signed commitment from the client to save. New account holders at treatment branches also became savers as active as those who had opened accounts without prompting.
Our work with CAME demonstrated that behavioral insights can be used to help increase the adoption and active use of savings accounts among low-income clients, in turn helping to build a business case for offering services that meaningfully benefit low-income consumers who are traditionally excluded or underserved by formal financial services.