Malawi - Financial Development & the Psychology of Savings


  • PROJECT TITLE: Financial Development and the Psychology of Savings--Field Experiments in Rural Malawi
  • TARGET SEGMENT: Low-income agricultural wage earners and smallholder farmers
  • DELIVERY CHANNEL: One-on-one sessions at participants’ homes (financial knowledge), direct transfers of wages into bank accounts, offers of new labeled accounts
  • EVALUATION TEAM: Xavier Gine (World Bank)
  • PARTNERS: Opportunity Bank of Malawi and Lujeri Tea Estates


This project investigates innovative ways to address low levels of formal savings in developing countries. The study explores to what extent psychological mechanisms can be leveraged to increase formal savings. In particular, the study determines whether direct deposit of wages –as opposed to receiving cash– can help individuals to match desired savings and expenditure patterns with actual behavior. In addition, the study explores how a combination of formal financial products and training can help to activate mental accounting to facilitate savings.

The study has two parts: In the first part, it evaluates the introduction of a new direct deposit system at large agricultural firm in Malawi that pays workers’ wages into individual accounts, instead of paying in cash. Receiving wage or farm revenues in the form of cash may exacerbate self-control problems, since the temptation to spend may be higher when cash is on hand. Drawing on surveys and administrative data from bank records and the tea estate the study seeks to measure changes in the consumption patterns –timing and allocation across expenditure categories– as well as formal and informal savings and borrowing behavior.

In the second part, the project looks to study mental accounting and the role of labeled bank accounts to activate such mental accounting. Mental accounting describes the phenomenon that money is not always fungible across expenditure categories. Savings that are mentally assigned to a specific savings goal or set of expenditures, like inputs for farming or children’s school fees, may become less available for expenditures for another set of expenditures, like unplanned purchases. Offerings savings accounts that stress such mental separation by being labeled for specific expenditure categories such could therefore help individuals achieve their savings goals. The study seeks to measure impacts on financial behavior and household wellbeing through combination of survey and administrative records. Additional behavioral experiments will help to disentangle competing theories about effect channels and the nature of mental accounting.

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