Russel Sage Foundation

Conventional wisdom holds that giving individuals short-run incentives to save will have no impact on long-run economic outcomes. Using a field experiment conducted in rural Kenya, Schaner shows that 6-month interest rate subsidies on individual bank accounts lead to significantly greater total income and assets over 2.5 years after the subsidies expire. These changes are notably larger than the short-run impacts on experimental bank account use, and almost entirely driven by increased rates of entrepreneurship. In contrast, subsidies to joint bank accounts have limited impacts on income, but increase investment in household public goods and lead to greater spousal consensus over financial matters. These results suggest that participants activated different behavioral savings rules in response to the different subsidies, and that the effect of these choices is highly persistent.