New CGAP Report: the Big Questions of Youth Savings

Originally posted on youthsave.org.

By Tanaya Kilara, CGAP

With over 1.2 billion young people in the world today, the business case for youth savings seems obvious. As I mentioned in my last blog, it is in fact one of the most talked-about topics in the youth financial services space. When CGAP joined the work of the YouthSave consortium to help develop savings products for low-income youth, we focused on studying the business rationale for targeting the youth segment with savings services. But as we began to explore this topic, we realized that the starting point was understanding the lives of youth and that the ‘case’ for youth savings could be a business one, but could also be one for policymakers interested in using savings as a high-impact policy instrument for youth development.   

And while there is a lot of interest from policymakers, financial service providers, NGOs and others in the topic, we quickly discovered that the reality often is that financial services are simply not readily available to youth, for a variety of reasons.

With this as the backdrop, we set out to gain an understanding of the factors that make youth savings interesting for financial service providers and policymakers. The results of this research have just been published in CGAP’s first paper on the topic of youth savings: “Emerging Perspectives on Youth Savings”

The paper examines the role of finance in the lives of low-income youth in developing countries, looking in particular at the importance of savings for the youth market segment. Here are a few highlights:

• The youth are an important demographic: There are 1.2 billion youth between the ages of 15-24 worldwide. For many countries, how they deal with the burgeoning youth population will determine their economic trajectory.
• Finance has a role in helping youth deal with the transitions (learning, working, life events) in their lives, but the tools of finance must reflect the specific challenges and opportunities that youth face.
• Youth savings present opportunities and challenges both for policymakers and providers. For policymakers there is an opportunity to instill better financial habits at an early age, promote asset building and improve the gross savings rate of a country. However, there are also obstacles linked to the legal age to enter into contracts and identification requirements. 

For providers, opportunities lie in building a lifelong, loyal customer base, cross-selling to youth’s networks, gaining market share, especially in competitive environments and solidifying brand and delivering corporate social responsibility. However, serious obstacles remain around both the short and longer term profitability of youth savings accounts.

• The paper also gives practical considerations for policy makers and financial service providers when targeting the youth market.

One of the conclusions is that more data on the social impact of youth savings is needed to understand if policymakers can use it as a policy instrument – an interesting point because it shows that the question of youth savings goes far beyond just finance. This was echoed at YouthSave’s recent event on “Youth and Their Money”, where I was part of a panel on ’Understanding Demand’.  During the discussions, Katia Peterson of Population Services Internationalmade the point that economic empowerment played a role in health outcomes, especially reducing risk-taking behaviors in young girls. As part of the YouthSave project, the Center for Social Developmentis looking to better understand how education and health outcomes are impacted by offering youth savings accounts. So we look forward to interesting future developments in this area.

Clearly, the role that financial services can play in the lives of youth during their own unique life transitions is a relatively unexplored area of research. We hope that this paper will provide a first step at bringing together some of the perspectives that are already out there and encourage further research on how financial and non-financial services can help the youth address their unique needs.

Tanaya Kilara is Associate Microfinance Analyst at CGAP and co-author of the report