How Debit Cards Enable the Poor to Save More

Trust is an essential element of economic transactions, but trust in financial institutions is low, especially among the poor. Debit cards provide not only easier access to savings, but also a mechanism to monitor bank account balances and thereby build trust in a financial institution. We study a natural experiment in which debit cards are rolled out to beneficiaries of a Mexican conditional cash transfer program whose benefits are already directly deposited into a savings account. Using administrative data on over 340,000 bank accounts over four years, we find that prior to receiving a debit card, beneficiaries do not save in these accounts. Beneficiaries then begin to increase their savings after 9 to 12 months with the card. During this initial stagnant period, they use the card to check their balances frequently, and the number of checks decreases over time as their reported trust in the bank increases. After 1 to 2 years, the debit card causes the savings rate to increase by 3 to 5 percent of income. Using household survey panel data, we find that this effect represents an increase in overall savings.