While aid agencies, research institutions, and empirical economists have devoted many resources to help the urban poor gain access to credit through microfinance institutions, they have largely ignored the constraints imposed by lack of appropriate saving instruments.
This project, built upon a pilot funded by EASST, investigates why micro-entrepreneurs fail to save, how they formulate their savings goals, and how they learn about the goals formed over time. The study will enroll 600 micro-entrepreneurs in Addis Ababa, Ethiopia in a field experiment. Individuals will be randomized to receive 1) a short-term financial literacy training on the costs and benefits of opening a bank savings account, 2) a series of five-dollar financial incentives for meeting pre-specified savings targets, 3) both the training and the incentive, or 4) nothing (the control group). A particularly novel fourth treatment group will allow randomly selected participants to re-optimize their original commitment savings account plan. This will allow researchers to test whether small shop owners effectively learn about their self-control and adjust their behavior accordingly.
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