Policy Seminars

Stephan Meier
Columbia University

Topic: Evidence on self-help groups and peer pressure as savings commitment device

Date/Place/Time: Friday, November 5, 2010 at 1:30PM-3:00PM
UCLA Anderson Cornell Hall D307


Peer groups are often used as a commitment device to achieve personal goals, but there is little empirical evidence evaluating their effectiveness and analyzing what aspects lead to their success. In collaboration with a large commercial bank and a microfinance institution, we conducted two randomized field experiments among low-income micro-entrepreneurs in Chile, to test the effect of peer groups and increases in the interest rate on savings. We find that self-help peer groups increase the number of deposits in a formal savings account 3.5-fold, and almost double the average savings balance.
Achieving a commensurate average effect would require increasing the interest rate by at least 7.8 percentage points, and most participants do not respond to the increased interest rate at all. A second field experiment shows that over 80% of the peer group effect can be achieved without actual meetings or peer pressure, through simple text messages that remind participants of their savings commitment, and give them feedback on their achievement. A text message coupled with peer pressure by a real-life savings buddy has no larger effect than a text message that simply informs participants of their own achievement and the success rate of others. These findings suggest that regular follow-up and taking stock may be more important than actual peer pressure in making peer group meetings an effective tool to encourage savings.

Link to paper (if available): Click here