By 2021, only 31% of Chile’s country’s population over 15 had saved in a financial institution, with especially low rates among the very poor, depriving them of the benefits of a range of financial services, including savings accounts, credit, and insurance products.
The issue of how to increase financial inclusion and, in the process, boost savings in in Latin America and the Caribbean has become increasingly important, given the region’s aging population and low levels of saving. One initiative intended to further that goal in Chile was Chile Cuenta (CC), which shifted transfers from the Programa Puente (PP), a conditional cash transfer program for the most vulnerable, from cash to direct payments into bank accounts.
An Experiment in Chile
We worked with the Chilean government and the state bank of Chile to evaluate the initiative, dividing up participants through randomized assignment into a treatment group and a control group. The treatment group was offered the option of receiving the transfers through direct deposit into a bank account, while the control group continued receiving their payments in cash, unless they individually and independently requested changing the payment method.
We looked at data from the bank receiving the transfers for the 12 months before the offer and nearly three years after it, as well as surveys of participants two to three years afterwards. We found that while 55% of participants in the treatment group opted for the direct payments into bank accounts, the offering had no impact on overall savings at the partner bank. We also found that it had no effect on other variables commonly associated with greater financial inclusion, including greater average assets among participants and trust in the implementing bank.
A Significant Impact for Those with Limited Banking Experience
There was one very significant development, however. Among the 15% of participants who didn’t have a positive account balance at the time of the offer, savings increased by a substantial $60 average per person in the partner bank, equivalent to about 3% of these participants’ annual income and 6.7-18.6% of Program Puente transfers. Moreover, among these participants, savings increases could be seen in both the accounts receiving the direct transfers and in savings accounts, meaning participants were shifting to money to the accounts with the most beneficial savings options.
The program also decreased government costs related to paying out subsidies and may have saved participants transportation costs to payment centers.
An Example for Greater Financial Inclusion
In recent years, countries including Brazil, Colombia, Mexico and Peru have shifted their cash transfer systems to modalities involving direct payments to bank accounts. This has been done with the idea of increasing safety, reducing corruption, generating more cost-effective processing for the government, and promoting financial inclusion, with all the added benefits for recipients that come with formal financial services, like access to savings accounts and credit. Our research shows that while not all these goals were achieved in Chile, the shift to direct transfers can generate large increases in account balances, especially for those with no prior experience with bank accounts. It can thus help improve financial inclusion and promote savings in Latin America and the Caribbean, as well as other regions.
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