> Posted by Sonja Kelly, Fellow, CFI
Marisol is a 69-year-old woman in Aguablanca, a mid-sized community near the coast in Colombia. She hasn’t saved much for her older years. She receives a small social pension—about a dollar per day—from the public pension program, Colombia Mayor. While it provides an income floor for her, Marisol would like to be working as an entrepreneur. She even has a plan: “If I had a little capital, I could buy chicken legs, beef, and bananas here at a cheap price and then sell them in the Pacific towns at three or four times the price. And then I could bring back fish from the coast to sell here at the fairs.” But she cannot get a loan because of the age caps on credit at the financial institutions that operate in her area.
Marisol explains that it is not her lack of zeal or a declining health that is keeping her from increasing her income through this business dream of hers. “Strength and desire do not fail me,” she says. “It’s the money that I lack.”
Marisol was one of the people that we interviewed as part of the creation of an issue paper on Aging and Financial Inclusion, a project conducted by the Financial Inclusion 2020 campaign and in collaboration with HelpAge International. Her story is not unique—many older people report being denied access to credit and insurance in their later years. Most older people who had low or informal income when they were younger have not saved for their older years.
The new paper examines the unmet financing needs of older adults, a population segment growing rapidly in developing countries. With a focus on Latin America, the paper discusses the barriers to and market opportunities in expanding financial access to aging populations.
Some of the conclusions in the paper are intuitive. We expected, for example, that rapid aging in middle-income countries was a major societal challenge based on the research we conducted for our report, “Looking Through the Demographic Window”. We also expected that by and large people were not saving as much as they wanted to—indeed, while many people intend to save for older age, they often end up having to rely on government support and family and friends when they stop working.
Other conclusions, however, were surprising:
- Many people at the base of the pyramid could make contributions to pensions over their lifetimes, but they have no means to pay into a pension system. Particularly in countries with populations largely working in the informal sector, major proportions of the labor force are outside the pension scheme. To date, convenient mechanisms for collective contributions have been cost prohibitive. This is changing, though. New technologies for P2G payments could provide convenient and inexpensive means, if pension providers and payment service providers collaborate.
- Older people often lack access to the microfinance services that have been offered to people at the base of the economic pyramid. We found that in many markets, age caps exist on credit and insurance products. While we were unable to articulate exactly why this happens (whether it is because of retirement age, longevity, or concerns about disability), older people that were interviewed as a part of this project report that such restrictions cripple their ability to pursue self-employment and to mitigate financial shocks in their older years.
- There is a great deal of room for financial institutions to improve their interactions with older people. Lack of trust is one of the primary barriers that financial institutions face when working with older customers. Earning trust is not an easy process, but tailoring customer service to the needs of older people and ensuring adequate client protection is a start. We spoke with institutions that intentionally train their staff to anticipate some of the physiological issues associated with aging. They reported success in increasing clients’ engagement with the financial institution.
- Social pensions – pensions provided without prior contributions as part of social welfare – have dramatically increased in recent years, but there are large coverage gaps. Where they are offered, social pensions provided by governments create an income floor that assures recipients that they can regularly meet at least some of their basic needs. But they don’t cover everyone, and they are usually quite small compared to living costs.
- Many experts believe that the existing network of social pensions is not adequately leveraged. Social pensions could be linked to other products—loans and insurance, for example, which could be paid back directly through the social pension system’s infrastructure. The prevailing attitude, however, is that social pensions are intended to bolster consumption, and therefore a means to save a portion of these amounts is not considered, which in turn means that connecting pensions to bank accounts is an untapped opportunity to build financial inclusion.
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*Name in client vignette has been changed to protect privacy.