Stronger together? Shocks, educational investment, and self-help groups in Tanzania

Do income shocks affect educational investment? Can self-help groups or Savings and Credit Cooperative Organizations (SACCOs) mitigate the impact of shocks on educational investment? Using nationally representative panel data from Tanzania, I find that educational investment suffers because of income shocks. On a whole, I find that income shock is negatively correlated with educational investment measured in per school-age child educational expenditure. However, I find no strong evidence to suggest that self-help groups and SACCOs buffer against income shocks. This suggests that locally available buffering mechanisms such as self-help groups and SACCOs do not necessarily help households to cushion against income shocks partly because many of the shocks affect most people in a given locality. Therefore, relying solely on the local mitigating mechanisms may not be a good option. This calls for a need to design policies that would enable households to insure themselves beyond their local insurance mechanisms. Public insurance and social safety nets programs may help households to overcome income shocks.