Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.

What a savings experiment in Kenya can teach us about money

coin bundle of cash australian dollars savings experiment in kenya financial literacy education

When people living in a Nairobi slum were asked to save about $1 a week, the results “changed a lot” of how a leading behavioural economist thinks about money.

Professor of psychology and behavioural economics at Duke University, Dan Ariely said this week that the savings experiment he conducted in the Kibera slum in Kenya revealed the importance of positive reinforcement in a world where spending is visible but saving is not.

Speaking at the Association of Superannuation Funds Australia conference on 29 November, Mr Ariely explained that as part of the experiment, people were asked to save 100 shillings – the equivalent of $1 — each week for 24 weeks.

Some people were simply asked to deposit money into an account with the popular Kenyan mobile phone-based money transfer service, M-Pesa. Others received a weekly text reminder to save 100 shillings and another group received the text reminder, but the text was composed as if it were written and sent by the account-holder’s child. 


Another group was told that if they saved 100 shillings, they would be matched an extra 10 per cent at the end of the week. The fifth group were offered a 20 per cent match at the end of the week.

The sixth and seventh groups were given the 10 and 20 per cent matches at the beginning of the week. If they failed to save the full 100 shillings, a corresponding amount of the match was taken back.

The last group were given a coin that had 24 numbers etched on it and every week the saver was asked to scratch a number in one direction for success and the other way for if they didn’t save the full amount.

At the end of the 24 weeks, the results found that by simply providing the account, “people started saving”.

However, with a weekly reminder people saved more. Those with a 10 and 20 per cent match at the end of the week saved more again and those with the match at the beginning saved even more.

The effect of having the text send as if it came from their child was akin to having the savings match offered at the beginning of the week.

However, he said the coin was the “big surprise of the study” as it “basically doubled savings” compared to all other groups.

He explained: “When you do experiments in the third world, you really need to walk around a little bit and get a better sense of what's going on.

“So I walk around [Kibera] and I see a father buying funeral insurance for a week.”

He explained that funerals are very expensive in Kenya and can be worth up to two years' income.

“This father got funeral insurance for a week which means it will only provide cover if he dies in the next seven days. These are very poor people, they only have small amounts of money...and he takes the certificate and he gives it to his son.

“As he's doing this, I think to myself, imagine a family of somebody who is very poor that is diverting money into savings or insurance.”

“Think about the breadwinner that gets positive reinforcement from their family every time they bring money in. All of a sudden you're diverting money into something that nobody sees. What kind of positive reinforcement do you get?”

He explained that the coin was an idea of saying “it’s not less, it’s just different. Here’s a reminder in the home that money is still around.”

Continuing, he said that this showed not only the importance of positive reinforcement but also just how difficult it can be to save money in a world where others’ spending is extremely visible.

“Think about the following: a thousand years ago, how did we save? We saved in goats, livestock. When we saved in goats it had the really nice feature that you could come home at night from work and you could see how many goats your neighbour has and we could compete on who has more goats.”

However, upon the advent of money and later digital money, visibility shifted to spending.

“Is it any wonder that we may pay disproportionate attention to the thing that is visible?”

In terms of preparing for retirement, Mr Ariely said this also means savers are often unable to predict their required retirement income in a “meaningful way” and that this in turn means advisers and planners should consider taking on a more “paternalistic” role.

That includes instructing clients about what is acceptable and excessive spending and encouraging them to cut down on extra spending by getting off the “hedonic treadmill” fuelled by new purchases.

What a savings experiment in Kenya can teach us about money
coin bundle of cash australian dollars savings experiment in kenya financial literacy education
nestegg logo
subscribe to our newsletter sign up
Recommended by Spike Native Network
Anon - Yes ill-logic which is new logic. Penalised savers and reward spenders. Bravo....
Anonymous - He is simply saying look to long term dividends....
Anonymous - There are so many crackdowns by the ATO it’s a wonder that anyone has enough unbroken bones on which to walk.....
Anonymous - Low as in a new low for scoundrels depleting your savings?....