The Long-Term Effects of Temporary Incentives to Save: Evidence from a Prize-Linked Savings Field Experiment

The Long-Term Effects of Temporary Incentives to Save: Evidence from a Prize-Linked Savings Field Experiment

7 July, 2020  •  

Are savings accounts experience goods, where consumers learn the value of saving in formal financial institutions only after opening and using an account? Across 110 bank branches throughout Mexico, we randomized a short-run incentive to save: prize-linked savings accounts with cash-prize lotteries, where lottery tickets are awarded as a function of savings balances. Both existing account holders and new account openers were eligible to win prizes, which were based on new savings accumulated over two months. After two months, the incentive was removed. We find that the savings lotteries served as a nudge to open accounts, causing a 43% increase in the number of bank accounts opened in treatment branches during the lottery months; in pre- and post-lottery months, there was no difference in the number of accounts opened in treatment and control branches. On the other hand, there was no intensive margin effect of the incentive on savings balances for existing accounts. While compliers who open accounts in treatment branches during lottery months initially save less than those who open accounts during the same months in control branches, we find that their savings balances catch up to the control group over time (after about 18 months). Furthermore, account openers in the treatment and control branches make transactions and keep their accounts active at similar rates in the five years after account opening.

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