Saving by Default: Evidence from a Field Experiment in Rural India

Access to banks is rapidly increasing worldwide, and allows account-based instead of cash transfers. We conduct a randomized experiment documenting the impact of the payment method on savings behavior. In India, we allocate identical weekly payments into a bank account (treated) or in cash (control). Savings in the account increase by 131 percent within 3 months, and the effect is long lasting. We also show that cash payments increase consumption and that-once everyone is paid in cash again-the savings patterns no longer differ. We interpret these findings as a default effect, and we further discuss plausible mechanisms.