How Saving Is Influenced by Behavioural Biases

• by Premasis Mukherjee, Akhand Tiwari and Anup Singh
• Mar 26, 2015
• 1 min
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This Note analyses the trends through behavioural economics lens and tracks behavioural factors responsible for – preferences for informal savings; procrastination towards savings commitment; and overwhelming preference for “fixed return” schemes.

Savings products and services have traditionally been designed assuming rationality and willingness of people to save and liquidate towards life-cycle goals. However, in real life, low-income mass market people continue to save in low (or often negative) interest bearing informal savings schemes, and do not commit, choose and/or continue medium or long term savings programmes designed by formal financial institutions. This Note analyses these trends through a behavioural economics lens and tracks the behavioural factors responsible for – preferences for informal savings; procrastination towards savings commitment; discontinuance of committed savings; and overwhelming preference for “fixed return” schemes.  The Note suggests alternative strategies that can enhance commitment and usage of formal savings schemes, especially in low income mass market segment.