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Restoring the Fortune Fountain of Youth

Almost a billion people have experienced a dramatic reversal of fortune over the past half-century. In the 1950s, around the time that my parents were born, approximately 55 percent of the world’s population lived in extreme poverty. In 1990, when I was born, the share of people living in extreme poverty had been slashed to just above 24 percent. Last month, the World Bank estimated that the percentage of people living on less than $1.90 per day will fall to its lowest point ever: under 10 percent. 

The World Bank’s poverty measure has its limitations, and a great deal of people still live in destitution. Nevertheless, this announcement represents significant progress in the effort to reduce poverty around the world. Many people are better off today than they were a generation ago, especially in Eastern and South-Eastern Asia.

Still, as overall poverty wanes, generational poverty waxes. Youth around the world are struggling to access some of the basic building blocks of success. People may be less impoverished today than they were the year I was born, but many people born after 1990 are not.

Since 1990, the global youth population has exploded. There are 1.8 billion people between the ages of 10 and 24 in the world and 89 percent of them live in less-developed countries. While youth populations are shriveling in the United States, Europe, and many Asian countries, there is a “youth bulge”—meaning that a large share of the population is comprised of children and youth—in South Asia and North and Sub-Saharan Africa. And the swollen youth population has impacted efforts to combat poverty in these regions: On average, more than 70 percent of African youth live below the World Bank’s poverty threshold of $2 a day.

With access to health care, education, and job opportunities, the “youth bulge” could represent vast potential for economic and social progress in nations that need it most. But those countries won’t realize that potential unless they build a path to development.

As world leaders think about how to improve the plight of young people, they ought to consider youth savings programs. The YouthSave Project (which, in the interest of full disclosure, is a consortium project in which New America plays a part) recently released its synthesized findings, which confirm that youth from low-income countries actually do save when given the opportunity, and that savings programs for young people can have far-reaching educational, economic, health, and behavioral outcomes.

YouthSave extended tailored savings products to 130,000 youth in Colombia, Ghana, Kenya, and Nepal over the course of five years. In addition, about 50,000 youth received financial education to learn personal financial management skills. Collectively, YouthSave participants, half of whom lived below a consumption expenditure of $2.50 per day, were able to save almost $1,000,000.

Some used their savings to invest in the future. Despite the important role education plays in improving life chances, one in three youth in the developing world do not attend secondary school. Par for the course, the primary reason YouthSave participants saved was to continue their education. A full 79 percent of savers in Ghana reported putting money aside in their YouthSave accounts for this purpose. For some, being able to use a formal financial institution to build assets was a game-changer.

A 16-year-old girl from Ashiaman, Ghana, named Regina, used her savings account to stay in school. After her father died, Regina’s mother was unable to afford her school fees. But Regina didn’t allow this to dampen her goal of becoming a nurse. She got a job and began saving in her YouthSave account. “The woman I’m working with pays me well,” Regina explained. “Every month, I get the money then I bring it to the bank and save some money, so I can go to secondary school.” Regina had never been to a bank before opening her savings account. But after eight months of deposits, she was able to enroll in secondary school.

But theirs are not the only futures in which the youth are investing: Saving from childhood can establish a sound foundation for youth to contribute to their families and communities as they enter adulthood. Researchers found that some of the youth were using their savings to stabilize household finances. Participants reported saving to buy food for their families, and some saved to assist their parents in case of a job loss or family illness. Indeed, the second most common reason youth saved was for emergencies.

Sajita, an 18-year-old girl from the Bhaktapur district in Nepal, described using her savings as a personal and familial financial cushion: “[I have] increasing responsibility towards my home as well as towards developing my own career as I am growing older... I don’t have my elder sister at home, so I have to be more responsible towards my house and sisters. I have been using my money sometimes to manage financial crises at home and for managing my own expenses. Once I had withdrawn Rupees 10,000 to help my father pay wages for the laborers who are building our new house.”

Savings can also facilitate positive developmental outcomes that will serve youth across a life course. The Ghana YouthSave Experiment—part of the larger YouthSave Project—investigated whether and how youth savings accounts affect financial capability; psychosocial, education, and health outcomes; and economic well-being of Ghanaian youth and their households. Ghana YouthSave Experiment researchers found positive preliminary indications of a causal relationship between savings and youth development. They conducted a study that included a sample of 100 junior high schools, 50 of which were assigned to the control group and 50 of which were assigned to treatment conditions. Half of the treatment group received in-school banking (test group A), while the other half received marketing outreach from the participating financial institution (test group B).

Compared to the control group, the treatment sample saw marked improvement in a key marker of financial capability. Those who had access to in-school banking were more likely to open savings accounts: 21.1 percent of Test Group A, 11.4 percent of Test Group B, and a mere 0.3 percent of the control group. With regular deposits, youth who opened accounts in the treatment group would have an annual savings rate of $25, a meaningful amount for school-aged children in Ghana. And the treatment group was more likely to save either for college or to start a business.

Youth savings, then, allow children to continue their education, to support their families, and to learn how to manage their financial futures at an early age. These programs may also yield intangible benefits, including important socioemotional development outcomes, such as improved psychological well-being (e.g., self-efficacy, self-confidence) and future-orientation. Equipped with financial knowledge and skills, youth can make informed, positive choices in other areas of their lives, including health behaviors.

Savings can enable youth to do more than survive: It can put them in a position to thrive. If we help young people save, we can help make sure that, over the next half-century, theirs might be the fortune that’s reversed.

Author:

Patricia Hart was a policy analyst in the Asset Building program at New America where she provided research and analysis on a range of topics, including affordable housing, financial inclusion, and workforce development.