1. 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
When Can Financial Education Affect Savings Behavior?

2. 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).
When Can Financial Education Affect Savings Behavior?

3. 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 products
Scholars focusing on both developed (Lusardi and
Mitchell, 2014) and developing countries (Xu and Zia,
2012) documented low levels of financial literacy
When Can Financial Education Affect Savings Behavior?

4. 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
When Can Financial Education Affect Savings Behavior?

5. 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
When Can Financial Education Affect Savings Behavior?

6. Outline
Background
Intervention
Experimental design
Data
Identification strategy
Results
Mechanisms
Conclusions
When Can Financial Education Affect Savings Behavior?

7. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
Background: The FINO model
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
When Can Financial Education Affect Savings Behavior?

8. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
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
When Can Financial Education Affect Savings Behavior?

9. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
Experimental design
Two 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
When Can Financial Education Affect Savings Behavior?

10. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
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)
When Can Financial Education Affect Savings Behavior?

11. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
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
When Can Financial Education Affect Savings Behavior?

12. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
Identification strategy
About 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
When Can Financial Education Affect Savings Behavior?

13. 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’
accounts
No substitution effects and evidence of crowding in
Significant decrease in spending on temptation
goods
Financial attitudes improve, but overall financial
literacy does not improve
When Can Financial Education Affect Savings Behavior?

14. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
Results
When Can Financial Education Affect Savings Behavior?

15. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
Results
When Can Financial Education Affect Savings Behavior?

16. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
Mechanisms
Results 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
valued
Gaining understanding on how to save and importance of
saving
Effectiveness of accumulation of small savings via “power of
compounding”
When Can Financial Education Affect Savings Behavior?

17. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
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)
When Can Financial Education Affect Savings Behavior?

18. Background Intervention Experimental design Data Identification strategy Results Mechanisms Conclusions
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 FE
Use of mobile platforms
Use of business correspondents to educate clients
Use of media (cable television network)
School financial literacy education
When Can Financial Education Affect Savings Behavior?

19. Thank you!
When Can Financial Education Affect Savings Behavior?