The Effect of Bank Account Ownership on Credit, Consumption, and Savings: Evidence from the United Kingdom

Abstract

I use an electronic transfer mandate in the UK Child Benefit program, a transfer received by virtually all families with children, to estimate the effect of bank account ownership on the financial behavior of less educated families with children. With the mandate increasing account ownership by as much as 29 percent for less educated families with children, it provides an exogenous increase in account ownership to examine the causal effect of bank account ownership on access to credit, purchase of household durable goods, vehicle ownership, vehicle purchase, and accumulation of financial assets. When a less educated family becomes an owner of a bank account, I find a 71 percentage point increase in the probability of owning a credit card, an increase of 1.4 household durable goods, and no change in vehicle ownership or purchase. Although I find that bank account ownership does not affect the mean level of financial assets, I do find evidence suggestive of an increase in the top half of the financial asset distribution which indicates that there may be heterogeneity in the savings response to owning a bank account. Overall, my findings suggest that the most important benefit of owning a bank account is access to credit and requiring lower income families to own a bank account will not reverse their low average savings levels in the short run.