(Why) Do Poor Households Under-Save? A Review of the Behavioral Literature

Abstract

Under-saving of poor households in developing countries is an intensively studied topic in behavioral development economics. According to a growing body of empirical studies, poor households’ savings are constrained by behavioral factors such as self-control problems. This paper reviews the empirical evidence since 2000. The main finding is that the behavioral analysis of under-saving has produced little robust evidence concerning the relevance of behavioral explanations for under-saving, and implications for policymaking are still rather unclear. Most studies have been dedicated to the study of self-control problems, but clear and unambiguous evidence of a link between self-control problems and under-saving is scarce. Some studies are in themselves inconclusive; at other times, different studies reach contradictory conclusions that are difficult to reconcile, raising concerns about the generalizability and external validity of single studies’ findings. The article concludes by proposes some steps towards the reconciliation of different findings.

Keywords: under-saving, behavioral development economics, self-control problems, present bias, limited attention

JEL Classification: O12, D15, D90, E21