Last week, NPR’s Planet Money ran a group of stories on “DIY Finance” — how people create their own informal financial systems. One of the stories focused on a group of funeral home employees in Harlem who operate an informal savings club called a susu. Every pay day, the 13 members put $100 into a common fund, and they draw numbers to determine the order in which they get the money. Funeral director Tamara Bullock drew the number 7, so she got to take home the $1300 on the seventh payday.
Regular readers of our blog will recognize the susu as an example of a rotating savings and credit association, or rosca. We’ve already highlighted a few of the conditions that make for successful roscas, but the NPR story revealed a couple additional benefits to these savings clubs.
Tamara Bullock, who admits to being somewhat of a compulsive shopper, likes the susu because it uses social pressure to force her to save money. Tamara has a traditional savings account, but unlike the susu, her bank doesn’t care if she makes regular deposits or withdraws money too often (unless, of course, she overdraws the account). The susu, on the other hand, doesn’t give her the option to skip a deposit because her friends are counting on that money every month. Furthermore, the susu forces her to save money because it only allows her to withdraw money once in the entire cycle. “I like that I can’t access it,” Tamara told the NPR reporters.
The social nature of the susu is also fun for members. Tamara and her friends like to dream together about how they’re going to spend the money, and they get excited for each other’s shopping sprees and vacations.
Susus are an excellent example of the social dimensions of economic activities like saving and consumption. People don’t manage their money in isolation; they’re influenced by their peers and social groups. Associative and Communal arrangements like the susu allow people to take advantage of these social influences to reach personal financial goals. For people who have trouble saving money, a susu can provide strong incentives to save.
As we noted in the blog post about roscas, informal savings groups have a remarkably low default rate, which speaks to the power of social pressure to influence behavior. These groups can also strengthen personal relationships, as people encourage each other to work toward financial goals and celebrate when one of their members pays off a large debt or takes a much-needed vacation.
Photo by Marianne McCune/NPR.
- “Episode 466: DIY Finance.” (2013). NPR: Planet Money: The Economy Explained. June 18. (http://www.npr.org/blogs/money/2013/06/18/193176928/episode-466-diy-finance)
- Biggart, Nicole Woolsey and Rick Delbridge. (2004). “Systems of Exchange.” Academy of Management Review 29(1): pp. 28-49.