Youth Savings: Finding the Right Financial Tools at the Right Age
With a third of the global population today under the age of 19 and 90 percent of these young people living in developing countries — 45 percent living on less than $2 a day — there is an urgent need to create easy and efficient savings mechanisms for the young.
While national governments, NGOs and multilateral institutions broaden program mandates to embrace financial inclusion (the G2012 Mexico event as well as the follow-on G20 Financial Inclusion challenge are just two examples) the idea of providing savings at birth has experienced a resurgence here in the U.S. and around the world. This resurgence is part of a larger movement to provide the tools youth need to accumulate savings, in order to build responsible financial habits throughout their lives.
Bagwhan Chowdry, founder of Financial Access at Birth (FAB), and Phillip Longman, senior research fellow at the New America Foundation, have both laid out plans for providing bank accounts at birth. Chowdry argues that global issues of financial access and poverty can be substantially reduced if we provide each child in the world with an electronic bank account and $100 at birth. (See below video for more.)
Last week Longman appeared on NBC News outlined the structure and benefits of children’s savings accounts here in the U.S. Longman argues that American Stakeholder Accounts given at birth could serve several important functions over a child’s lifetime – including providing savings for education and retirement.
Savings accounts at birth represent just one approach to engage youth in asset building. Private for-profit institutions are quickly entering the youth financial services market. Today more and more financial products are designed with low-income youth in mind. These institutions recognize the value of attracting young customers early on and the broad benefits low-income children experience from building savings early in life.
In two different exploratory savings studies, the Savings for the Poor Innovation and Knowledge Network (SPINNAKER) found that an overwhelming number of private for-profit financial institutions specifically targeted low-income youth and/or children. In Kenya “more than 1 in 5 savings products surveyed targeted children and/or youth…” the study found. The majority of these products were offered by private institutions and provided higher average interest rates (4.03 percent compared to 1.63 percent) and more flexibility than products that did not target a specific demographic. In the Philippines, SPINNAKER found that 22 percent of savings products surveyed targeted children and/or youth. While these products differed from those in Kenya, they shared similarities when it came to providing more flexibility in regards to balance requirements and fees.
YouthSave, a consortium comprised of The MasterCard Foundation, Save the Children, the Center for Social Development at Washington University in St Louis, the Global Assets Project at the New America Foundation and CGAP, is helping financial partners like Postbank in Kenya and Banco Caja Social in Colombia through market research, national studies and more to deliver the right financial products at the right time to this demographic. The YouthSave initiative will first focus on Colombia, Ghana, Kenya, and Nepal.
On Thursday (July 26), the Global Assets Project will host the event: Youth and Their Money: New Insights on the Financial Lives of Youth in Developing Countries. Members of the YouthSave Consortium and other experts in youth financial services will share recent findings, trends and opportunities for encouraging youth savings. Panelists will discuss different areas of study and share their preliminary answers to questions, such as ‘what do we really know about the financial preferences of low-income youth?’ and ‘how do we encourage positive financial behavior?’
Whether we start encouraging savings at birth or at other points in a child’s development, such as through school and community programs, there is still a lot to learn about the financial needs and behaviors of this large and significant population. This event provides an opportunity to continue the dialogue and build off existing research, with an eye toward future opportunities. As new products and programs are launched or updated, more opportunities will be created to generate data and learn how to more effectively reach low-income youth in developing countries.