Saving Themselves: Why young people are asking for better savings services
In the financial inclusion field, the importance of savings is now so well established it barely merits comment. The operative questions in the industry are about the “how” – how to provide low-income adults with safe, quality savings services that meet their needs, and how to do so cost-effectively and at scale.
The conversation about youth savings, however, sometimes reminds me of where we were with low-income adults 10 years ago: no money, no savings. Skepticism about young people’s savings is compounded by the fact that many of them are not (or shouldn’t be) working. So how could children and youth – especially from low-income families – possibly save money? And why would we encourage them to do so?
Before we get to the “how”, let’s address the “why.” Over the last decade, a growing body of research has shown connections between youth savings and improved outcomes in other youth development areas, including psychosocial functioning, educational attainment, and attitudes and behaviors around sexual risk taking. Although these links may not be intuitive, think about it from the perspective of a poor teenager. If you had money in your bank account that you knew was yours, why wouldn’t you think about going to school next year, and therefore study harder now? If you had hopes for your future, why wouldn’t you be more careful with your body today? And how could these hopes not make you more future-oriented than someone with no tangible means of realizing their dreams?
This intuition is backed up by the research. Savings can not only provide the economic means to achieve goals, but the act of saving may itself increase the self-efficacy and delayed gratification habit loops that make it easier to reach them.
Looked at from this perspective, it makes sense why global market research has shown not only that low-income youth can save money, but that they’re already doing it – with whatever tools and whatever amounts they have at their disposal (most of which, incidentally, comes from their own families). The tools are mainly informal and the amounts generally very small, but a great many young people are still squirreling away cash to pay for day-to-day expenses related to school, personal care or emergencies. In addition, many of the youth we spoke to during YouthSave’s market research wanted help saving up bigger amounts for bigger goals (most commonly to continue their schooling), recognizing the limitations of their current informal savings mechanisms – too much accessibility, meaning too much vulnerability to temptation or theft.
This is where the financial inclusion community can add value. Experience indicates that helping young people build savings will require some combination of 1) access to quality savings facilities, and 2) orientation/guidance to link youth to, and help them make the best use of, savings opportunities. Obviously, the savings facilities need to be tailored to the needs and context of target youth. There are a number of encouraging experiments currently under way on this front – from youth savings groups organized by PLAN to the massive numbers of youth savers at MFIs in the YouthStart project to our own partnerships with commercial banks at YouthSave. Collectively, these programs are poised to yield important lessons about which models can reach different youth populations at scale, and the potential role of targeted subsidies in reaching the most vulnerable.
(Left: Rani Deshpande)
On the financial education front, the answers have been slower to emerge. While the field awaits more results from rigorous impact research, implementers have been listening to youth and learning from each other to design a range of mechanisms to impart financial literacy. At YouthSave, that has meant a combination of face-to-face financial education through workshops or clubs, layered with lighter-touch/lower-cost vehicles such as SMS, street theater, radio dramas and community events. But as an industry, we still have much to learn about whether, what type, and how much financial education is really critical to changing actual savings behaviors, as opposed to just changing knowledge, skills and attitudes about saving.
The answers to these questions will be essential to optimizing our support of youth savings in the future. In the meantime, however, there are a number of immediate opportunities to significantly increase young people’s access to savings services. The following three obstacles in particular require increased attention, evidence and communication:
Regulatory: In most countries, minors cannot own or operate a bank account without the participation of an adult as the legal custodian, trustee or joint owner. Sometimes this adult must be the youth’s legal guardian, foreclosing opportunities for other relatives, teachers or NGO staff to assist in opening accounts. For youth with trustworthy adults in their lives, such restrictions may create an opportunity for fruitful dialogue about money with a responsible mentor. However, many youth neither have, live with, nor trust their parents/guardians – or sometimes any adult for that matter – with access to their money. Such youth, often among the most marginalized, must therefore rely on informal savings mechanisms. While organized youth savings groups have proven successful in rural contexts, transient populations make them less viable in urban settings, where cash may be at even higher risk of theft.
Commercial: If small savers are costly for formal financial institutions to administer, how much more costly are the even smaller savings of young people, who will take longer to become profitable clients using more lucrative payment and loan services? The business case for youth savings is a long-term proposition that requires vision, willingness to invest and, when dealing with low-income youth, some level of social responsibility. Our (competitively- but still self-selected) bank partners at YouthSave possess all three; however, though copycat products have sprung up in some of our markets, it is not clear whether the majority of banks will be willing to follow their lead. Government deposits of child-directed welfare payments into youth accounts could provide an incentive, as could industry-wide branding campaigns that created positive pressure for more banks to offer such products. (Easing the regulatory requirements noted above would also make it simpler.)
Attitudinal: Despite the evidence, most people still believe that young people cannot save, do not want to save, or should not be saving (after all, most people are not reading this blog). But without getting buy-in on the “why” – not only from bankers and policy makers, but also from parents and teachers and local leaders in low-income young people’s own communities – the “how” questions will remain largely irrelevant.
Our work in countries as diverse as Kenya and Nepal has shown that changing adult mindsets regarding youth savings is not only necessary, but that it works – and that once they see the results, adult “gatekeepers” can become some of the strongest advocates. We have heard this from youth, who often fear they will receive less pocket money if their parents know they are saving, but now commonly report receiving more. We have heard it from teachers, who have observed remarkable changes in the responsibility and maturity levels displayed by their pupils after joining a savings club. And we’ve heard it from initially skeptical community leaders, who have pledged to support our program after participating in a community orientation.
YouthSave has an ambitious research agenda, including a longitudinal experimental impact study in one of our target countries and comprehensive outcomes research in all four. Results are emerging, but convincing constituencies that require this kind of evidence may take a while. In the meantime, we see that young people are already convinced – and they’re using their experience to convince those around them about both the “why” and the “how” of youth savings. Both kinds of evidence – the lived experience of young people and their families, and the data produced by rigorous research – will be necessary to produce the policy, business and mindset shifts needed to truly make youth savings accessible to all who can use them.
Rani Deshpande is the director of the YouthSave project at Save the Children US.