presentation session39 santadarshan_sadhu

When Can Financial Education Affect Savings Behavior?

Evidence from a Randomized Experiment among Low Income Clients of Branchless Banking in India

Calderone, Margherita (German Institute for Economic Research)

Fiala, Nathan (German Institute for Economic Research)

Mulaj, Florentina (World Bank)

Sadhu, Santadarshan (IFMR Finance Foundation, India)

Sarr, Leopold (World Bank)

Session 39, Making Impact Evaluation Matter Conference

September 05, 2014


Motivation• Interventions to facilitate saving are touted worldwide

as anti-poverty tools.

• Evidence suggests that the poor have substantial and potentially latent, demand for accumulating financial assets (Karlan, Ratan, and Zinman 2013).

• Surveys indicate poor households do tend to have some surplus that they use for non-essential expenditures (Banerjee and Duflo, 2007).

• Detailed “diary” studies document complexity in poor households’ financial portfolios and highlight the demand for small irregular flows to be aggregated into lump sums for household or business investment (Rutherford,2000; Collins et al., 2009).


Motivation

Technology based new innovations in banking systems helped connect between 500 and 800 million of the world’s poor to formal finance (Deb and Kubzansky, 2012)

Evidence suggests that the majority of these individuals are not prepared to interact with the growing complexities of financial productsScholars focusing on both developed (Lusardi and

Mitchell, 2014) and developing countries (Xu and Zia, 2012) documented low levels of financial literacy


Related literature

Research on the impact of Financial Education (FE) has provided mixed results Duflo and Saez (2003) - marginal impact of a

benefit fair on retirement plan enrollment among employees of a university in the US

Cole et al. (2011) - no impact of a FE training on savings among the unbanked in Indonesia

Jamison, Karlan, and Zinman (2014) - positive impact of financial education intervention on savings in Uganda


Evaluation

Designed a Financial Education (FE) intervention in collaboration with FINO, an Indian company specialized in branchless banking

Used a randomized design to identify causal effects of FE on savings behavior

Implemented Financial Education intervention in a class-room set up during July – Aug 2011

Collected baseline data in April 2011, endline in April 2012 (about 9 months after the intervention)Analyzed the impact


Outline

Background

Intervention

Experimental design

Data

Identification strategy

Results

Mechanisms

Conclusions


Background: The FINO model

Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions


Doorstep banking system

Implemented through FINO agents or business correspondents, called “bandhus”, who periodically visit the client households

FINO clients have a FINO smart card to do transactions (deposits and withdrawals)

Today in India there are 30,000 bandhus serving over 77 million customers

Intervention

2-day training program, delivered through combination of different methods, including video, flipcharts, storytelling (2-3 hours per day) in a classroom setting, followed by interactive discussions on the presentation

The training focused on: Role of formal banking in people’s lives, financial planning &

budgeting

Responsible borrowing, spending, Cash management and saving

Importance of insurance in risk management

Delivered by professional trainers

Evaluation team staff monitored the delivery of intervention



Experimental designTwo districts in Uttar Pradesh

Randomization at the village/ bandhu level

Total 200 bandhus randomly assigned into treatment and control groups:

15 clients per bandhu randomly selected for the study leading to a sample of 3,000 rural households

Pre-baseline balance in treatment assignment with respect to available FINO client information on demography and account usage



Data: Baseline

60% had at least one other formal savings account

Those with an account, 59% had a non-zero balance

Only 24% had a non-zero balance in “doorstep” FINO accounts

Basically no budgeting skills and low interest in financial topics

Levels of financial knowledge similar to those found in other developing countries(Cole et al., 2011 -Indonesia), but significantly lower if compared to an urban Indian context (Carpena et al., 2011)



Data

Treatment and control households are not statistically different regarding their demographic and savings profiles

Attrition is low: only 2.8% in the T group and 2.1% in the C group

The baseline characteristics of households that left the sample are similar in the T and C groups Attrition and treatment status are unrelated



Identification strategyAbout 20% of the clients initially assigned to the

treatment group did not attend the training

Intention-to-Treat (ITT) is identified by β when (1) is estimated by OLS

(1) Yh POST = α + β Th + δ Xh PRE + η Yh PRE + εh POST

Treatment-on-Treated (ToT) is identified by β when (1) is estimated by IV using the initial assignment to treatment as an instrument for attendance



Summary of the results

Total savings in the treatment group increase by about $28 (an increase of 29% as compared to the endline total savings in the control group)Small increase in savings in the bank account served by

FINO. Substantial increase savings in other nationalized banks’

accountsNo substitution effects and evidence of crowding in

Significant decrease in spending on temptation goods

Financial attitudes improve, but overall financial literacy does not improve


Results



MechanismsResults are not driven by a marketing effect on FINO

savings

A causal chain reaction from knowledge to behavior might not be necessary

The intervention helped in boosting commitment towards savings (reducing spending on “temptation goods” )Post- endline qualitative survey indicates beneficiaries

valuedGaining understanding on how to save and importance of

savingEffectiveness of accumulation of small savings via “power of

compounding”



Conclusions

The intervention was successful and also cost-effective

The ratio of the cost of the trainings per participant to the average increase of about $30 in savings is $0.84 per dollar saved if the cost of the video

development is not included (the cost of scaling the program with FINO clients) or

$0.93 if the video costs are included (the cost of replicating the program elsewhere)



Conclusions: Future Research

Rigorous financial education intervention, coupled with access to banking services can significantly increase savings

Need research to find innovative and cost effective methods of delivering FEUse of mobile platforms

Use of business correspondents to educate clients

Use of media (cable television network)

School financial literacy education



Thank you!


presentation session39 santadarshan_sadhu

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