Trust and Saving in Financial Institutions by the Poor

Abstract

We examine the role of trust in financial institutions as a necessary condition for the wider use of formal financial services by the poor. We randomly assigned beneficiaries of a conditional cash transfer program in 130 villages in Peru to attend a 3.5 hour training session designed to build their trust in financial institutions. Using household survey data combined with high-frequency administrative data, we find that the intervention: (a) significantly increased the level of trust in the financial system, but had no effect on knowledge of the banking system or financial literacy; and (b) resulted in the treatment group saving 13 Peruvian Soles more than he control group over a ten month period and (c) had no effect of the use of bank accounts for transactions. The increase in savings is close to double the savings of the treatment over the 10 month period prior to the intervention, 7 times the savings of the control group over the same period, and a 1.6 percentage point increase in the savings rate out of the cash transfer depostis.