Emerging Perspectives on Youth Savings
The world’s population of young people between the ages of 15 and 24 is estimated at 1.2 billion, with the vast majority living in poor countries.1 Global economic progress has driven down mortality rates much faster than fertility rates such that the world has never had as many youth. In particular, many developing countries, such as India, Afghanistan, Uganda, and a number of countries in the Middle East, are experiencing a bulge in their youth populations. And this bulge, if managed well, could yield a demographic dividend. A demographic dividend refers to an increase in economic growth that tends to follow increases in the ratio of the working age population to dependents, as has been observed in developed countries (Bloom, Canning, and Sevilla 2003).
Notwithstanding the potential for economic growth, creating the many new jobs needed to productively absorb a burgeoning youth population is challenging. Globally, youth are over-represented among the unemployed and underemployed, even when unemployment rates are not high (Rosas 2011). Without sufficient job creation, civil, social, and political upheaval may ensue.
How countries manage this demographic transition depends in part on how they address the individuallevel transitions that young people face as they enter adulthood, especially youth who are less well off. Though youth are not a homogenous group, there are some universal transitions that all youth make—or aspire to make—in their lives as they become adults. These major transitions have to do with learning, working, and navigating major life events, such as marriage or managing health issues (World Bank 2006). Studying these transitions can help us understand the opportunities and vulnerabilities young people face, as well as their preferences, choices, and behaviors.
The linear, predictable transitions (school, college, work, marriage, children, etc.) often observed among higher income youth are not strictly applicable to lower income youth. Low-income youth in developing countries begin earning income at a younger age than their wealthier counterparts, and they engage in complex financial transactions early on. They are often forced to drop out of school to help support their families financially. In some cases, they themselves are heads of households. Even lower income youth who are still in school are often engaged in some economic activity outside of school. Thus, for lower income youth, transitions start earlier—even before the age of majority—and happen in a compressed timeframe.
This paper examines the role of finance in the lives of low-income youth with a focus on the opportunities and challenges of offering them savings services. The opportunities and challenges presented, from the perspectives of policy makers and financial service providers, are not necessarily all proven, but rather potential or possible. This is because both the state of practice and the body of evidence on youth savings is still emerging. Throughout, we share examples of the progress of experimental work that is ongoing. Youth are primarily adolescents who are 10–19 years old, though some examples use different definitions.