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Are Bank Accounts a Key to Happiness?

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January 25, 2016

The benefits of having a bank account are well documented. People with accounts are better able to start businesses. Women who get paid into an account spend more money on their children's health and education. When faced with unemployment or the loss of a breadwinner, a savings account can be the difference between destitution and stability.


Now we can add another item to that list: owning an account makes you happier. In fact, the impact of account ownership on personal happiness is roughly the same as getting married.  


If this sounds like a tricky thing to measure, it is. Here's how it’s done: First, we used data from Gallup World Poll surveys on wellbeing. Every year, Gallup researchers ask people around the world to rate their own happiness on a scale of one to ten. They also discuss their recent positive experiences (‘did you smile yesterday’) and negative experiences (‘did you worry yesterday’).


Next, we spliced Gallup's data with the Global Findex database, which tracks how many adults worldwide own accounts, save money, and make digital payments. The results were striking: We found that people who have an account or saved in the past year tend to be happier than those who do not, regardless of differences in income, age, gender, and education. And women seem to get a bigger boost than men.


The data doesn't tell us how the connection works, but it's not hard to see how having an account makes life better for women, especially in poor countries. In rural Zambia, a teacher has to shut down the schools in her village two days a month so she can make a bus trip to the capital and collect her wages in cash. This is not only costly, inconvenient, and unsafe; it steals valuable instructional time from students. Women who have their salaries wired into an account are spared this frustration.


Personality could also be a factor. For example, people who save money might be more optimistic and excited about the future. They might also get a boost in wellbeing by working towards a saving goal, like investing in education or starting a business.


Having an account and a safe place to save also gives people greater assurance, and an effective insurance, for the future and their ability to weather unemployment, medical emergencies, or death of a wage earner.

But the challenge for women is that they're less likely than men to have an account at the starting gate. Fifty-nine percent of men in the developing world have an account compared to just 50 percent of women, according to the Global Findex. The gap ranges from a low of 4 percentage points in East Asia and the Pacific to a high of 18 percentage points in South Asia, but it is significant everywhere.  And when it comes to using digital financial services like mobile money, which is linked to an account in their name, women are adopting by the millions in countries like India and Tanzania, but they still lag men globally in adopting and trying these new ways of managing their finances.


One way to close this gap is to target working women who, like the schoolteacher in Zambia, need an account for practical reasons. Women's employment is tightly linked to account ownership: In the developing world, about half of women who work for wages or are self-employed have an account. The regional leader is Latin America, where about 60 percent of wage earners are paid digitally. Much more needs to be done, however: about 300 million unbanked adults receive wage payments in cash, including 120 million women.


In addition to providing these women a safe and convenient way to receive payments, accounts would open new opportunities to save money and build credit history. Demand for appropriate savings options is widespread in the emerging world, with about 40 million unbanked women in Sub-Saharan Africa saving through informal groups or by keeping cash under the mattress. If those funds were moved into accounts, they'd accrue interest and be less susceptible to impulse spending by profligate relatives.


In countries where the right regulations and technical infrastructure are in place to support bringing low-income people into a digital financial service world using accounts, the possibilities to better smooth consumption and improve household outcomes are large. The evidence shows that when we economically empower a poor woman, she invests more in education, nutritious food and healthcare for her family.


Finally, digital financial connections between governments and their citizenry who have accounts can streamline and improve the way payments are made to and from the poor. Less leakage along the way means more money in poor peoples’ pockets.  Research shows that in developing countries, digitization will add trillions of dollars to GDP that currently is floating around in unaccounted for cash transactions in the informal economy.


Digitizing payments isn't an exercise in philanthropy, as businesses have plenty of selfish reasons to abandon cash. A factory owner in Bangladesh closes his factory for two days a month just to dole out cash payments. He fills a truck with the equivalent of over $2 million worth of $5 notes, hauls it out to the factory gates, and pays his employees one by one. No doubt, paying these people into an account would make everyone happier.

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