Graduation Year

2016

Date of Submission

4-2016

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Jeffrey Flory

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© 2016 Audrey Breitwieser

Abstract

Formal savings accounts can be an effective device for households to accumulate assets over time and thus have more funds available to better afford an expensive one-time payment, in the form of either addressing an economic shock or paying for an important life event. I explore this relationship using a field experiment in rural Malawi conducted from 2008-2010, and find that adoption of a formal savings account has no effect on the frequency of economic shocks that a household experiences, nor does it affect how households respond to shocks. However, I find that account adoption does significantly increase the frequency of a household’s expenditures on the life event of payment of secondary school fees. These findings indicate that, given enough time, adoption of a formal savings account allows a household to better accumulate its excess income, and therefore better afford expenditures that involve a decision by the household, as economic shocks tend to be exogenous and payments surrounding life events endogenous. These results support the effectiveness of a policy that extends formal financial services to rural, poor populations who may not have access to such services, as households can use excess funds to finance important life events that help future generations to escape a poverty trap.

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