MICROFINANCE PAPER-WRAP UP: “Emerging Perspectives on Youth Savings;” by Tanaya Kilara and Alexia Latortue; published by CGAP

By Tanaya Kilara and Alexia Latortue; published by CGAP (Consultative Group to Assist the Poor); July 2012; 10 pages; available at: http://www.cgap.org/sites/default/files/CGAP-Focus-Note-Emerging-Perspectives-on-Youth-Savings-Aug-2012.pdf

The authors of this paper argue in favor of familiarizing poor individuals with savings programs, especially at early ages. Although it is difficult for youth from low-income families to save, there are ways financial providers can offer tailored savings plans to meet the needs of these groups. This paper examines the potential opportunities and obstacles faced by financial service providers as well as policymakers that seek to increase the use of savings plans by youth in developing nations. According to the paper, there are 1.2 billion youths worldwide between the ages of 15 and 24, with most living in developing countries, indicating an enormous potential for financial service providers who target this group. According to the World Bank’s Global Financial Inclusion Database (Findex), approximately 4.2 million youth have access to financial services worldwide as of 2012. The authors encourage institutions to work to eradicate the idea that youth are “irresponsible, unable to handle money, and risky due to a lack of collateral.”

Proponents of youth saving stress the importance of starting to save early and state that youth savings programs can “promote asset-building,” teach good financial habits and ultimately improve the country’s overall savings rate. Policymakers also need to examine the legal age for youth to enter into contracts, which is a potential obstacle, as well as the widespread lack of identification documentation. Financial service providers must also overcome low profitability due to smaller deposits, fewer transactions and less product purchases from youth groups. On the other hand, potential advantages include gaining market share, delivering on corporate social responsibility, building the organization’s brand and nurturing a loyal customer base at a young age.

The paper ends with a review of the considerations that policymakers and financial service providers need to study in order to implement these youth savings programs optimally. More studies on the social impact of these programs would help policymakers promote the idea. Financial institutions need to determine if the products they currently offer to adults can meet the needs of youth or if they need to tailor financial products to these individuals. They must also look at potential profitability to determine whether it is worth entering these markets.

By Sarah Benali, Research Associate

Sources and Additional Resources

“Emerging Perspectives on Youth Savings,” by Tanaya Kilara, Alexia Latortue, CGAP: July 2012, http://www.cgap.org/sites/default/files/CGAP-Focus-Note-Emerging-Perspectives-on-Youth-Savings-Aug-2012.pdf

MicroCapital.org Story: “MICROCAPITAL BRIEF: World Bank Group’s ‘Measuring Financial
Inclusion: The Global Findex Database’ Indicates 2.5 billion Do Not Have Access to Formal Banking,” May 28, 2012, https://www.microcapital.org/microcapital-brief-world-bank-groups-measuring-financial-inclusion-the-global-findex-database-indicates-2-5-billion-do-not-have-access-to-formal-banking/

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