What Are the Headwaters of Formal Savings? Experimental Evidence from Sri Lanka

The world’s poor are seeing a rapid expansion in access to formal savings accounts. What is the source of savings when households are connected to a formal account? We combine a high-frequency panel survey spanning two and a half years with an experiment in which a Sri Lankan bank used mobile Point-of-Service (POS) terminals to collect deposits directly from households each week. We fi nd that the headwaters of formal savings lie in sacrifi ced leisure time: households work more, and improved savings options generate an increase in labor effort in both self-employment and in the wage market. The results suggest that the labor allocation channel is an important mechanism linking savings opportunities to income.

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