The Determinants of Micro Saving

Abstract: It is more difficult for the poor to save money than for the wealthy. The poor have no institutions to help them such as state pensions and they are left to fight their personal short comings themselves. One consequence is that the poor save under their ability. Savings is important to respond to changes in the environment and to avoid incurring debt. Two of the behavioral obstacles the poor face in order to save are inconsistent time preferences in the form of hyperbolic time preferences and temptation goods. Such time preferences cause self-control issues and procrastination of important decisions. By controlling for various socioeconomic variables such as schooling and age I targeted certain behavioral determinant of saving, notably hyperbolic time preferences and temptation goods, in my study. It turns out that the individuals with hyperbolic time preferences displayed signs of having problems of self-control in regards of temptation goods. Where financial instruments were not available the existence of inconsistent time preferences posed a large hindrance to saving in comparison to the area where formal saving was available. This confirms earlier research and stresses the importance of access to formal savings.