Institutional determinants of saving: Implications for low-income households and public policy

There is an emerging policy and academic discussion, supported by a growing body of empirical evidence, regarding the potentially positive effects of asset accumulation in low-income households. However, at least two questions precede this discussion: Can the poor save? And, if so, how can programs and policies promote saving by the poor? This paper begins to address these questions by examining the effects of institutional variables on saving behavior. We posit that four institutional variables - institutionalized saving mechanisms, targeted financial education, attractive saving incentives, and facilitation - promote saving. However, low-income households are substantially less likely to have access to these institutions, a phenomenon that may help explain their below-average saving rates. This discussion has implications, especially as policy-makers consider various proposals to increase the saving rates of low- and middle-income Americans.