> Posted by Eric Zuehlke, Web and Communications Director, CFI
With 1.2 billion people, youth between the ages of 15-24 represent approximately 18 percent of the global population, and 87 percent of youth live in developing countries. Yet only 44 percent of 15-to-24-year-olds have an account at a formal financial institution globally compared to 55 percent of adults.
Last week, I had the privilege of moderating a panel discussion on youth financial inclusion, hosted by Credit Suisse and organized by the Microfinance Club of New York. The presenters shared important examples of what has worked in providing financial education and services to youth. Joining me were:
- Barbara Magnoni, President of EA Consultants and co-author of CGAP’s “Analyzing the Business Case for Youth Savings“
- Maria Perdomo, YouthStart, Programme Manager, UNCDF
- Scott MacMillan, Communications Manager, BRAC USA
- Simon Bailey, Head of Learning, Research, and Network, Aflatoun
- Nathan Byrd, Head of Education Finance, Opportunity International
Recently, our Financial Inclusion 2020 team worked with Making Cents International to look at the barriers to and drivers of youth financial inclusion. We found that the primary reasons that youth cite for not having an account at a formal institution are a perceived lack of money, the high costs of services, and challenges in having proper identification. In addition, youth often feel that their financial assets or businesses are too small to work with a bank, especially in situations in which the costs of getting to a bank are high.
Despite these challenges, there are a few areas of opportunity. One is the business case. Since financial needs of young people grow in volume and sophistication over time there is a business case for serving them even as their financial needs are initially limited. Serving youth can help build a longer-term and loyal clientele if products are appropriate and financial capability is fostered. Another important area is financial education/capability. Establishing financial literacy early in life will help foster positive financial habits and lead to longer-term asset accumulation and higher credit scores. This needs to take place in a regulatory environment that supports financial inclusion and coordination among various players.
These three areas – the business case, financial capability, and the policy perspective – were the focus of much of the discussion at the event. I noticed that a few themes cut across the presentations:
Interventions across programs work. Integrating financial inclusion within other programs or products has reached more youth with financial services. A research study by Aflatoun looked at the effectiveness of various approaches to financial education. The most effective methods to impart knowledge incorporated financial education via games and role playing activities across curriculum areas and subjects in schools. BRAC has found that financial education is complementary with their life skills/HIV education programs that helps empower adolescent girls. Opportunity International connects savings accounts for students to life insurance, helping children continue to pay tuition in the event they lose their family income through a parent’s death or disability.
Financial inclusion has wide-ranging benefits for youth. The goal of financial inclusion is not just to provide access to financial services as an end in itself; the success stories that were shared showed that it improve lives. For example, an Opportunity International school-lending program led to wider community benefits including decreases in teen pregnancy and child abuse in the home.
Providers and policymakers need to understand the varied and complex needs of youth. Barbara Magnoni shared that segmentation is key for providers to understand the drivers of the business case for youth financial inclusion and to understand cost/revenue. Youth under age 24 have different needs ranging from younger children in school, adolescent students, and youth who work in the formal or informal economy. Maria Perdomo shared that in Uganda, the age requirement to open a savings account is 18. In Rwanda, it’s 16. Not surprisingly, Rwanda has a higher proportion of clients that are youth, but not by much. Why? According to Perdomo, a lack of understanding by governments of the needs of youth is a major barrier to financial inclusion. We need a better understanding of what products would be useful and the barriers to entry.
For more on youth and financial inclusion, check out our backgrounder on the issue here.
Photo credit: Charlotte Kesl / World Bank
Have you read?