Savings: What’s Culture Got to Do With It?

Is there such a thing as a culture of savings? This is a question I have been thinking about for almost a year now since undertaking research into savings accounts for children around the world. Bankers in countries from Sri Lanka to Papua New Guinea to Kenya told me in interviews that their banks are offering child savings accounts (CSAs) with an intention of "inculcating" a habit of savings among young people, or "nurturing" a savings culture. (Of course, these banks are primarily offering the accounts to attract and retain young customers, who will hopefully build their balances as they grow older).

In one conversation, a banker in Sri Lanka told me that Asians are more thrifty than people elsewhere. "We tend to save a lot," a tendency that he said was inculcated into the country's children. Conversely, an executive at an international children's charity told me that Ethiopia, where the charity recently started a child savings program, doesn't have a very strong savings culture. In Ethiopia, the executive said, the people that save, save primarily for death (i.e. through burial societies). Moreover, a banking executive at a multinational bank that operates in the South Pacific told me, in part because of a hot and humid environment, there is no such thing as a habit of savings in the region. If you get something today, you better consume it today, the executive said of the mentality there.

It was with these conversations in mind that I listened to a talk earlier this month given by Sheldon Garon, Professor of History and East Asian Studies at Princeton University, about savings in a global and historical context. Professor Garon, who is writing a book about thrift, asked if the post-war thrift in East Asia was due to cultural influences, such as Confucianism. He then took the audience through a series of historical trends that reinforced what I took to be his point that institutions are a key determinants of savings behavior. The stops on his historical tour included the origin of savings banks in Europe about two centuries ago; the regional disparities in the use of savings accounts in the United States early in the 20^th century (which he attributed to widely varying number of financial institutions in the regions); and the large footprint of postal banks in countries such as Japan. (Postal banks also have extensive networks in places such as China, Germany, and Kenya). Coming out of Professor Garon's talk, I found myself thinking that, instead of grouping countries as either having a culture of savings or not, perhaps it is more constructive to think about how governments can help promote a habit of savings among their citizens.

A question I have going forward is: Where does all of this leave developing countries that lack the infrastructure of bank branches to collect savings at? One intriguing possibility is transforming pharmacies, retail outlets of cellphone operators, and even mom-and-pop snack shops into mini-banks. The idea of conducting banking transactions with a third-party is often called using "banking agents." The CGAP Technology Program has done extensive research on the subject, including an overview of early experiences with branchless banking (which includes banking agents and cellphone banking), and a list of frequently-asked-questions on banking agents.

One sociological issue that arises when discussing banking agents (in addition to several regulatory ones) is if there is something lost by not dealing with a professional banker. Ideally - though this may seem naïve nowadays - bankers are supposed to help clients choose the most suitable financial products for them. For example, banks offer many types of savings accounts, and a person unfamiliar with banks in the first place would likely have difficulty understanding the features of each. One way to address this is for governments to encourage or mandate banks to offer a simple, low-fee starter account, which consumers can opt-out of if they wish. Another question is whether a person would trust "mom" or "pop" with their deposit. Getting at this question, in a lecture last week, Kabir Kumar of CGAP showed a photo of a pharmacy in a slum in Pakistan that has been equipped with a point-of-sale (POS) banking terminal. Mr. Kumar then noted that pharmacies make for particularly good banking agents because of the trust pharmacists typically command in a community.

So, in the future, can banking agents pull the same (or more) weight as postal banks historically have in terms of broadening access to financial products? My answer is "yes," though that it will take clever thinking by banking regulators to ensure that transactions with banking agents are safe for consumers. Such a development would seemingly enable all countries - even those thought by some not to have a culture of savings - to allow many more of their citizens to reap the benefits of being hooked into the formal financial system.