Author: Parul Agarwal
Saving has lately been
recognized as an inevitable instrument of financial inclusion. But this
financial behaviour needs to be judicious as undisciplined saving traps people
in the vicious circle of poverty that results in accumulated debt. For low-income
households, situations have stunning capacity to influence behaviour and
decision-making (Mullainathan et.al). Additionally, their inter-temporal choices
and consequent poor planning indicate majorly loss averse behaviour i.e. their
loss of utility associated with giving up a good is greater than the utility of
obtaining it. Perfectly aligning with this conduct, low income people often
claim that they are not able to save because of reasons like high expenses and unexpected
shocks that their families are vulnerable to.
In this scenario of
restrained behaviour and varied preferences, access to a no-frills account hasn’t
proved to act as a trigger and because these accounts offer liquidity, they are
highly leaky budgets. An alternative could, thus, be a product that requires
depositor to be committed and disciplined and that constraints depositing and
withdrawing operations. In contrast to the underlying premise of such a hard
commitment product of enabling people to save through enforcement,
Psychologists emphasise the importance of self-monitoring for successful
self-regulation. Breaking a personal rule often has a devastating effect on the
individual’s self-view.
