Does Saving Cause Borrowing?
Abstract/Contents
- Abstract
- We study whether or not nudging individuals to save more has the unintended consequence of additional borrowing in high-interest unsecured consumer credit. We analyze the effects of a large-scale experiment in which 3.1 million bank customers were nudged to save more via (bi-)weekly SMS and ATM messages. Using Machine Learning methods for causal inference, we build a score to sort individuals according to their predicted treatment effect. We then focus on the individuals in the top quartile of the distribution of predicted treatment effects who have a credit card and were paying interest at baseline. Relative to their control, this group increased their savings by 5.7% on average or 61.84 USD per month. At the same time, we can rule out increases in credit card interest larger than 1.25 USD with 95% statistical confidence. We thus estimate that for every additional dollar of savings, individuals incur less than 2 cents in additional borrowing cost. This is a direct test test of the predictions of rational co-holding models, and is an important result to evaluate policy proposals to increase savings via nudges or more forceful measures.
Description
| Type of resource | text |
|---|---|
| Date created | August 9, 2021 |
Creators/Contributors
| Author | Medina, Paolina |
|---|---|
| Author | Pagel, Michaela |
| Organizer of meeting | Bernheim, B. Douglas |
| Organizer of meeting | Beshears, John |
| Organizer of meeting | Crawford, Vincent |
| Organizer of meeting | Laibson, David |
| Organizer of meeting | Malmendier, Ulrike |
Subjects
| Subject | savings nudges |
|---|---|
| Subject | credit card borrowing |
| Subject | heterogeneous treatment effects |
| Subject | causal forest |
| Genre | Text |
| Genre | Working paper |
| Genre | Grey literature |
Bibliographic information
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- License
- This work is licensed under a Creative Commons Attribution 4.0 International license (CC BY).
Preferred citation
- Preferred citation
- Medina, P. and Pagel, M. (2022). Does Saving Cause Borrowing?. Stanford Digital Repository. Available at https://purl.stanford.edu/yw034gp6368
Collection
SITE Conference 2021
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- siteworkshop@stanford.edu
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