4.1.2 Apply a lifecycle lens when discussing YFS with policy makers
CGAP, in addition to its work on the policy case as part of the YouthSave Consortium 1, has also been looking at youth financial services more broadly in its five-year strategic planning process. It learned that applying a lifecycle approach to financial inclusion highlights some of youth-specific gaps that can help to design more effective financial inclusion strategies. The lifecycle approach studies the different life transitions including birth, school, preparation for work, starting a family, and the corresponding financial products that are required at each transition. These transitions, however, happen in a very compressed way, and often simultaneously, for lower income youth in the developing world. CGAP recommends evaluating each transition to identify which financial services could support youth in the developing world. Each transition must also be supported by non-financial services. Below, CGAP analyzes the four different transitions and corresponding financial and non-financial services.
1) Learning. Schooling is expensive. Even public school attendance carries with it financial costs including uniforms, supplies and books. Youth face a triple disadvantage in that early education in developing countries is weak, they often exit schools before obtaining higher education, and face limited ability to receive job training. Those youth who are able to obtain schooling must do so while they work to earn money to cover expenses and support their families. The challenge here is to determine how financial services can help support these young people as they learn and work simultaneously. Financial products may include a savings product for higher education or starting a business, or education loans. One example of an essential non-financial service would be for policy makers to focus on improving the quality of schools.
2) Working – Two out of five jobless are youth aged 15-24 and unemployment is systematically higher for youth (Global Employment Trends 2012, ILO). These youth often end up as entrepreneurs out of necessity rather than desire. It is important to distinguish between these two types of entrepreneurship when designing the corresponding financial services. The nature of work is also changing where we see the impacts of urbanization, digitization and industry leap-frogging, when economies develop from agrarian activities to service-related activities, skipping manufacturing altogether, on the workforce. Low-skill jobs are becoming harder and harder to find and youth lack the skills to actually get higher-skill jobs since their experience is largely based on agricultural activities. Financial services to consider for this transition are micro-equity and loans for vocational training. On the non-financial side, it would be important to ensure that youth have access to a dynamic job market.
3) Starting a family. Most births in the developing world occur among girls aged 15-24. Becoming a mother at this young age, when girls have yet to complete the education and work transitions, limit a young woman’s capacity to invest in her own children. Thus, the cycle of poverty continues. Financial products to consider for this transition are savings or credit for marriage and housing loans. On the non-financial side, youth should have access to social support structures like child-care to facilitate this transition.
4) Health. Youth are simultaneously making a transition with regard to their health. Risky behaviors – smoking and consuming alcohol, experimenting with drugs, and unprotected sexual activity – peak during youth, with the consequences of these actions felt much later. Young people tend to severely discount the future implications of their actions and that shows in how they manage their health when they are young. Adequate health insurance should be considered for this transition along with the importance of building good hospitals.
Despite these challenges, CGAP reports some progress in youth access to financial services. Based on a survey conducted by Making Cents in 2009 (http://www.youtheconomicopportunities.org/resource/940/little-means-lot-increasing-institutional-capacity-margins-youth-inclusive-financial), 4.2 million youth have been served with US$186 million in credit, US$48 million in savings and US$1.2 million in insurance. CGAP also cites some missed opportunities. Conversations with youth-focused foundations, The MasterCard Foundation 2 and Silatech 3, revealed that outreach to youth represents only 10-20 percent of loan portfolios even though they make up significantly more in terms of population, between 30-50 percent of populations. Additional missed opportunities include the fact that those aged 15-24 are 33 percent less likely to have a savings account and 40 percent less likely to save formally compared to those over 25. To address these missed opportunities, CGAP recommends developing financial services based on life transitions rather than age. Services should reflect behavior issues and address the youth-specific challenges of each transition. CGAP also recommends learning from existing and new experimentation to support the development of appropriate models, delivery channels and products. For more information on YFS product experimentation please visit http://www.youtheconomicopportunities.org/about/yeo/2.
Finally, CGAP recommends using the following questions to guide policy discussions:
- What are the most problematic transitions in your country context?
- How can financial services support each of these transitions?
- What policy tools can governments use to promote youth financial services?
- What policy tools can governments use to ensure youth are protected as they start using financial services?
- How can different government ministries work together to implement comprehensive policies to address youth transitions?
- How can government best work with the private sector to facilitate youth access to financial services?
The Center for Financial Inclusion (CFI) 4 recently conducted a study analyzing the changing demographics of middle and lower income countries. The study points out that in middle income countries, which represent most of the developing world’s population, falling birthrates and increasing life expectancy are contributing to a growing population of mature adults, aged 40-70. Only the lowest income countries will still maintain a growing youth population for the next few decades. These differing demographic realities should be considered on a country-by-country basis as decision makers design the most appropriate strategy for financial inclusion. CFI indicates that financial inclusion strategies and products should take a lifecycle approach into consideration. As part of its paper, CFI shared the following chart to help map out a financial inclusion strategy based on a country’s individual demographic reality. Adapting this chart based on CGAP’s youth-specific considerations, mentioned above, can be a good start to address youth financial inclusion.
Five years ago, a survey indicated that less than 5 percent of Filipino children save regularly. In addition, the latest Consumer Finance Survey indicated that only about 20 percent of Philippine households have bank accounts. In response, the Bangko Sentral ng Pilipinas or BSP (the Philippine central bank) launched the “Kiddie Account Program (KAP)” in partnership with 12 banks, including some of the country’s largest banks, and a combined network of about 3,000 branches across the country, in 2011.
To develop the habit of saving regularly among the Philippines’ 14 million elementary schoolchildren, KAP allows kids, seven and older, to open savings accounts with an initial deposit of Philippine Peso 100.00 or about US$2.50 with no required maintaining balance. To encourage greater uptake, the Philippine Department of Education has integrated lessons on saving and money management into the public school curriculum from grade one to grade six.
The goal of the program is to make saving affordable and convenient for schoolchildren. To encourage regular deposits, the banks will bring services to the schools starting next year. The Bank Marketing Association of the Philippines has also organized a campaign to encourage banks to compete against one another for kiddie clients.
Since Filipino children wield influence on their households, the BSP feels it is possible that kids who save will similarly motivate the adults in their household to also save regularly. The BSP looks forward to nurturing a new generation of Filipino savers, who spend wisely, and who know how to manage and invest their money prudently.
- 1. YouthSave is a consortium project led by Save the Children in partnership with the Center for Social Development at Washington University in St. Louis (CSD), the New America Foundation (NAF), CGAP (Consultative Group to Assist the Poor), and supported by The MasterCard Foundation. The YouthSave Consortium and its local partners - financial institutions and researchers - are committed to developing, delivering, and testing savings products accessible to low-income youth in Colombia, Ghana, Kenya, and Nepal. Through this project, the Consortium will share lessons and resources on delivering savings services sustainably, while improving the life chances of low-income youth in the developing world.
- 2. The MasterCard Foundation advances microfinance and youth learning to promote financial inclusion and prosperity. Through collaboration with committed partners in 48 developing countries, The MasterCard Foundation is helping people living in poverty to access opportunities to learn and prosper.
- 3. Silatech is a dynamic social initiative that works to create jobs and expand economic opportunities for young people throughout the Arab world. They promote large-scale job creation, entrepreneurship, access to capital and markets, and the participation and engagement of young people in economic and social development. Founded in 2008 by Her Highness Sheikha Moza bint Nasser, Silatech finds innovative solutions to challenging problems, working with a wide spectrum of NGOs, governments and the private sector to foster sustainable, positive change for Arab youth.
- 4. The Center for Financial Inclusion at ACCION (CFI) was launched in 2008 to help bring about the conditions to achieve full financial inclusion around the world. Constructing a financial inclusion sector that reaches everyone with quality services will require the combined efforts of many actors. CFI contributes to full inclusion by collaborating with sector participants to tackle challenges beyond the scope of any one actor, using a toolkit that moves from thought leadership to action.