New Insights on the Financial Lives of Youth in Developing Countries

The field of economic development has gradually come to the realization that poor people save in different ways, leading to a proliferation of research on the financial lives of the poor. This research has dispelled some of the most common assumptions about the poor, and has allowed the development of financial products targeted at poor individuals. Unfortunately, a dearth of research in the field of youth development and financial inclusion has led many to make similar assumptions about the lives of low-income youth. Commonly, these assumptions are quick to conclude that youth cannot save simply because they do not have money– an understandable concern, but one that recent data emerging from financial institutions and NGOs has come to dispute.

Data from a new YouthSave study suggests that programs targeted to vulnerable youth have opened thousands of accounts. This evidence, along with YouthSave project’s focus to understand the savings needs of youth, has driven four market studies in Colombia, Ghana, Kenya, and Nepal. Several hundreds of young people have participated in these studies – the result: a body of evidence that provides those interested in designing YSAs with data that increases their understanding of youth’s demand for savings in each particular country.

YouthSave’s market research indicates that the majority of young people in these four countries handle money regularly. The source of this money varies, with many of these youth working paying jobs, but the majority receiving money from their parents in the form of allowances and gifts. Most of the income for in-school youth is in the form of allowances that they use for buying food, basic clothing, and personal care items. Nevertheless, many youth mentioned savings as both “a destination for their income and a way of coping with the financial pressure they feel as a result of the need to meet their expenses.” When the YouthSave project was launched two years ago, not much research had been done on youth’s demand for savings products. Now the field can rely on this data to inform researchers and practitioners. Similarly, the recent surveys conducted by the Center for Social Development (CSD) on financial knowledge and attitude in Ghana have filled a knowledge gap in the fields of financial inclusion and youth development.

The new studies in Ghana focused on the financial knowledge and attitudes of youth. Financial knowledge refers to the understanding one has of personal finance. On the other hand, financial attitudes refer to one’s perceptions and values pertaining to personal finance, such as the importance one places on saving money. Recently, a study by ING Direct suggested that an overwhelming majority of teens in America – 87 percent – do not know much about personal finance due to a lack of financial knowledge. The same concern that guided these studies in the United States has prompted YouthSave to aim at increasing our understanding of the financial knowledge and attitudes in developing countries. Parents are the primary influence in the lives of many young people, and according to the surveys in Ghana, financial knowledge and attitudes are no exception. In Ghana, more than half of parents and guardians talk to their children regularly about ways for them to save money, and a little more than half speak to their children about managing their money and making sound financial decisions. The research’s outcome suggests that youth learn about finances mainly from their parents, but school also plays an important role.

Efforts in increasing access to financial knowledge and financial services are not limited to YouthSave’s four countries of study. For instance, initiatives like the Children’s Development Khazana (CDK), created by the NGO Butterflies in India, take a comprehensive approach to financial capability – a term referring to youth’s financial knowledge, skills, and access to financial services. CDK reaches thousands of children between the ages of 9 and 18 and provides them access to both financial education and financial services in India. Besides trying to “inculcate [the] habit of saving and budgeting,” innovative projects like CDK enable younger customers to earn an interest on their deposits, and provides older customers access to advances for starting small businesses.

For those dedicated to the creation of innovative programs for youth, the growing body of research provides a unique opportunity to think outside of the box and create initiatives that increase the financial capability of young people around the world.

Research efforts on the field of financial inclusion and youth development are growing at a considerable pace. On July 26, the YouthSave Consortium discussed its most recent data on the financial preferences of low-income youth and how to encourage positive financial behavior. Please join the Youth Save Consortium as it explores the ideas about the future direction of the field and examines new insights on youth savings by watching the video here and sending us your thoughts and comments.