Financial Services for Young People: Prospects and Challenges

> Posted by Center Staff

Unless you’re with one of the few organizations working to combat youth financial exclusion, you probably don’t hear much about the issue. A few weeks ago, the world celebrated Global Money Week, which is gaining encouraging participation and engagement. Sadly, aside from this annual blitz of activity, there isn’t much in the airwaves on expanding financial access to this hugely underserved client segment. According to the Global Findex, in higher-income countries, 42 percent of youth save in financial institutions. The next highest regions are East Asia & Pacific and sub-Saharan Africa, where this rate is 19 and 9 percent respectively. During our youth, financial services and financial education help us save for the future, form good money management behaviors, and navigate life transitions like getting an education and starting a family.

The MasterCard Foundation, as spotlighted in a recently released report, has been quietly busy these past seven years working to address this shortcoming. Since 2008, the Foundation in partnership with six organizations has worked with over 30 financial services providers and non-profits to expand youth access to banking services. The new report, Financial Services for Young People: Prospects and Challenges, reviews the MasterCard Foundation’s youth financial inclusion projects for insights and learning to inform future industry efforts.

Across the projects, clients’ target age range was 12 to 19 years old. The work included urban and rural areas, formal providers and informal community groups. Most of the projects were in sub-Saharan Africa, but also in Ecuador, Nepal, Colombia, and Morocco. In sub-Saharan Africa, where financial inclusion is especially low, there are 370 million people between the ages of 15 and 24.The projects tested a range of approaches, most based on savings, as opposed to credit. Project activities included market research, product development and testing, the delivery of financial education, the scaling of services offerings, building life skills, and other support. To date, as part of the projects, 762,100 young people have received financial education and life skills instruction, and 720,100 have opened new savings accounts.

As for the findings? Here is a handful of project takeaways, based on the four questions explored in the report:

Do young people need financial services? The demand for youth financial services is clear. Along with the impressive number of young people who participated in the projects, it’s estimated that, across sub-Saharan Africa, young people hold $2.2 billion in savings accounts, with the lower-income clients in this group accounting for almost half of this figure. Like other client segments, even when young people don’t have access to formal financial services, they save their money, borrow funds to meet needs, launch income-generating activities, and plan for the future. The project found that if younger people perceive products offer value and fair pricing, they are eager to learn about financial services and willing to pay for them.

Does financial access benefit young people? Project findings indicate that better savings and budgeting activities emerge with access to either formal or informal savings services. Other benefits include reduced costs of transactions, greater perceived safety of transactions, and “halo” or secondary benefits like enhanced confidence, access to opportunities, and an orientation toward the future.

What do we know about the business case for providing financial services to young people? Low transaction amounts and account balances make it costly for financial services providers catering to younger clients. However, in urban markets where competition will likely drive down costs, children and youth will likely become increasingly viable client segments in the future. Encouraging frequent account usage, product cross-selling to families and friends, and technology-enabled business models can improve the business model for providers. Additional support from donors and governments may be needed to help extend service offerings to particularly excluded youth in hard-to-reach areas.

How do we create regulatory and policy environments for the greater financial inclusion of young people? Proof of identify, address, and age are often barriers to access for youth clients. The report finds that the costs of complying with Know Your Customer and anti-money laundering regulations, and reporting requirements, are onerous for providers. Stakeholder groups, including regulators, national policy-makers, and services providers, need to coordinate to ensure that young people who open accounts are protected, and barriers to access are lowered.

For additional findings, including next steps to advance youth inclusion, read the report, Financial Services for Young People: Prospects and Challenges.

Image credit: Gates Foundation

Have you read?

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