Commitment Savings

The Challenge: Individuals engage in bad habits or are in unfavorable positions, and haven’t been able to commit to change. 

Many assume that the poor cannot save because they only have enough resources to meet their immediate needs. While informal savings groups exist in many forms, there is a tendency to underutilize formal savings accounts despite benefits from the added security of holding money in a bank. Many poor do not save with banks because they do not know how, feel intimidated by banks, or find it inconvenient to go to a branch and wait excessively to complete simple banking transactions.

As for bad habits, despite detrimental effects, people throughout the world habitually engage in damaging or inefficient habits such as smoking, eating poorly or failing to save money.  While this is not solely a problem for the poor, the negative results of these inefficient habits can have severe consequences for those in fragile financial situations.

In the Philippines, for example, 48% of adult males smoke cigarettes and there are just a few treatments available for tobacco dependence. The damage associated with smoking is well-documented but in a number of developing countries, high rates of addiction are similarly coupled with low opportunities for treatment.

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A Solution: Targeted savings products to help individuals save money while changing their situation through voluntary commitment. 

We have seen that improved savings products that allow individuals to set voluntary amounts and timelines can assist them in meeting their goals. For one thing, removing savings from the household makes it easier for people to resist the temptation to spend the money compulsively and to give in to the demands of family, friends, and neighbors.  A commitment account, by this reasoning, provides even more stability in helping individuals resist temptation.

As a way to empower women and help poor families save money, the Green Bank of Caraga worked with researchers from Innovations for Poverty Action to design and implement a commitment savings product called a SEED (Save, Earn, Enjoy Deposits) account. The SEED account provides women with a commitment to restrict access to their savings, thus assisting both with either self-control or family-control issues.  A successful voluntary commitment savings program, such as CARES (Committed Action to Reduce and End Smoking) not only helps individuals save more but can also assist individuals in achieving their commitment to quit. Savings in each account are only available on the condition that the individual passes a nicotine test at the end of a pre-determined time period, thereby strengthening the contract and making it easier for individuals to achieve objectives.

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