Five Things Any Youth Savings Program Needs
Originally posted by CGAP on May 20, 2015.
A piggy bank can be a fun and effective way to teach kids about saving money, but those little containers only go so far. They eventually run out of space, and they’re too easy to access for impulse spending. Working with Women's World Banking, the Dominican Republic’s Banco ADOPEM introduced a more promising strategy in 2010 for teaching kids how to save money: opening a savings account in their name.
With support from Barclays, Women's World Banking was able to return to Banco ADOPEM four years later and analyze the impact of this youth savings and financial education program called Mía (‘mine’ in Spanish) on the financial institution. Emerging principles from the Mía youth savings program demonstrate how to build a sustainable youth proposition with a positive, lasting impact on kids and their families.
Banco ADOPEM gives kids an alcancia, an aluminum-can piggy bank popular in the Dominican Republic, once they open an account. When the can fills up, kids are encouraged to take the money to the bank to deposit, and the bank gives them another alcancía. Banco ADOPEM’s Mía program targets specific youth segments with different offerings: a Mía Menores account for youth ages 0-15, and a Mía Mayores account for youth ages 16-24. Menores accounts must be opened by a parent or legal guardian, while older kids can open a Mayores account themselves. Both accounts are set up under the youth’s own name and designed to give kids experience in managing their own savings. Opening a Menores or Mayores account requires a small initial deposit ($2.50 or $5 USD, respectively). Dormancy fees kick in if an account remains inactive for six straight months.
At first glance, Mía has been a success for the bank: More than 35,000 Mía accounts have been opened, 57% of them for girls (the bank initially created Mía for girls only, but later offered it to boys as well). Among all clients who opened Mía accounts - including parents opening accounts for their kids - 19% were new to the bank. Those numbers were even stronger for accounts opened by youth themselves (without a parent/guardian): 52% were new to Banco ADOPEM. The Mía accounts did not always remain active, however. Forty-four percent of the Mía accounts opened by parents lost all their deposits to dormancy fees compared to only 13% of the accounts opened by youth.
After holistically studying the bank’s approach to and investment in youth savings, analyzing client profiles, and examining how youth and their parents managed - or in some cases neglected - their accounts, Women’s World Banking and Banco ADOPEM learned five key lessons about sustainably serving youth with financial services.
1. Banks must take a multi-generational approach, focusing both on the youth and on the parents who are saving for their children’s future. A financial institution’s approach to youth savings should reflect the financial needs, preferences and behavior of both youth and parents or guardians - which not only better serves these clients over their lifetime but also ensures the long-term sustainability of a youth savings program. Youth clients represent the bank’s future, and designing products that win their loyalty helps guarantee a robust customer base for generations to come, in addition to instilling positive savings and banking habits from a young age. However, this longer-term payoff should be balanced with the shorter-term profitability of reaching parents as well - at Banco ADOPEM, parents and guardians with Mía accounts had higher balances and also borrowed more from the bank, resulting in a more profitable value proposition as a whole.
2. Youth accounts should be optimized for onlending. Incentivizing clients, particularly youth, to grow their balances helps to increase onlending revenue (a more stable source of profitability for the bank). This can mean the end of dormancy fees, which raise revenues in the short term but threaten to drive away clients, reducing long-term sustainability of the program.
3. To realize the long-term profitability of serving youth clients throughout their lifetime, financial institutions must build in retention strategies. Banks must engage youth and earn their loyalty early on, help them shift to appropriate products as they grow up, and track their behavior to understand their customer needs and their lifetime impact on the institution.
4. Investing in marketing and financial education can encourage clients to build confidence with formal financial services, become better savers, and maintain healthier balances - a win-win for both clients and banks. Banks also need to create reliable mechanisms for tracking the impact of financial education on account performance, to better assess education and marketing investment decisions.
5. If banks receive grants for the development and launch of a youth program, they must prepare for the end of the grant-funded period and find ways to fund the strongest elements of the program with their broader budget.
Women’s World Banking is currently helping implement youth savings programs in Nigeria and Tanzania, and these lessons figure prominently into how our team designs these products. Once banks fine-tune their youth offerings to provide a more valuable product for clients and build a more sustainable business case for the institution, the benefits promise to be far-reaching.