Commitment savings products are designed to help people overcome social and behavioral barriers to saving money, but many questions remain about how, and in which cases, these products work. We are using a randomized evaluation to test the impacts of a commitment savings product, which pulls savings directly from electronically deposited salary payments, on various financial and behavioral outcomes in Ghana. To the knowledge of the research team, this is the first study on salary withdrawal savings plans in a developing country context.
A growing body of literature suggests that commitment savings products—voluntary arrangements designed to help individuals overcome social and behavioral barriers to savings—are very effective in increasing savings. However, there are several open questions regarding how these commitment devices work. For example, where does the savings come from? Do people reduce savings elsewhere, reduce their loans and transfers to others, or reduce spending on luxuries or basic necessities? Once the lump sum within the commitment savings device is released, how is it used? Are there any long-term impacts of having participated in the commitment savings program on economic activities, income, savings, debt, or spending behavior? Is the answer different for men and women? This study aims to address these issues.
Additionally, this research will provide much-needed evidence on commitment savings devices from the deposit side, as compared to the withdrawal side, and it will provide evidence from a developing country context on salary withdrawal savings plans. This research is also unique in that it focuses on relatively better-off, higher status individuals.
The Government of Ghana has begun paying its employees electronically, with individuals’ salaries paid directly into their bank accounts. These salaried workers tend to be more educated and have higher and more stable incomes than the average Ghanaian, and are often seen as providers within their households and communities.
North Volta Rural Bank (NVRB) is a rural bank located in the North Volta Region in Eastern Ghana. The bank offers customers whose salaries are electronically deposited by their employer the opportunity to take out high interest payday loans (temporary overdrafts) against their incoming salary. The majority of the bank’s salaried customers have taken these payday loans at least once, and many customers have taken out these loans repeatedly.
In an effort to keep customers from falling into a situation in which they are unable to meet their financial commitments, North Volta Rural Bank created a product, called “Salary Susu Plus,” in which customers commit to having a fixed amount taken directly from their salary and put in a commitment savings account for an 18-month period.
We are testing the impact of the Salary Susu Plus (SSP) product on study participants’ economic activities, spending and savings behavior, and amount of debt during, immediately after, and six months after the commitment period, and whether the impact differs across gender.
All North Volta Rural Bank customers with salaried accounts are being invited to participate in this study. For the 320 individuals (245 men and 75 women) who agreed, the bank randomly assigned half to a treatment group. Clients in the treatment group are being offered an opportunity to sign up for the SSP program, and of these, 71 percent joined the program. Those not offered the product served as the comparison group.
Participation in SSP involves committing to automatically transfer a fixed amount of one’s directly deposited monthly salary into an SSP account every month for a period of 18 months. The automatic transfer has to be at least 30 Ghana cedis (approximately US$10) per month. In practice, the mean monthly contribution amount is 43 Ghanaian cedis, which is equivalent to 9 percent of the average study participants’ monthly salary. At the end of the 18 months commitment period, the customer is able to withdraw all savings in the SSP account, along with a bonus equal to one month’s contribution. While clients can withdraw funds from their SSP accounts before the commitment period ends, they can only do so by leaving the SSP program, which means they forfeit the bonus payment and must also pay a penalty equal to one month’s contribution.
The bonus amount is designed to give customers a return on their investment that is more than double the return they would receive on a normal savings account. The minimum monthly contribution amount is set to be one-eighteenth of the average payday loan size so that the accumulated lump sum would be equivalent to the average size of a payday loan.
Study participants are being be surveyed before, during, and after the 18-month commitment period.