A Framework to Analyze the Business Case for Youth Savings
Not many financial institutions in developing countries target youth specifically, and for those that do, the youth market usually represents a small part of their overall operations. Other authors have argued the social value of extending savings services to youth, but the business case is less certain. As financial institutions have entered the youth market, the question has been whether they can offer youth savings products sustainably. In other words, is there a business case for offering youth savings products?
There is no answer that is universally true across all places, contexts, and times. A more practical approach is to analyze the value proposition. Which factors at the market, institutional, and segment levels make youth savings an attractive line of business? As a member of the YouthSave Consortium, CGAP proposed an analytic framework for understanding the conditions under which there may be a business case for financial institutions to offer savings products to young clients. The framework is designed to expand our understanding of the many factors affecting the profitability of youth savings products and to guide financial institutions as they decide whether and how to offer these products on a sustainable basis. CGAP’s Focus Note1 lays out the framework in detail.
There are benefits that financial institutions can gain from offering youth savings accounts. As noted above, financial institutions may see a social value in serving youth: as a means of fostering financial inclusion and developing economic opportunities for youth, which can contribute to political stability2 or to advance the institution’s obligation to act as a good corporate citizen. But targeting youth can also bring diversity to the client pool, which may be especially valuable for financial institutions whose client base is skewing older. Indeed, youth can deliver higher customer lifetime value than older customers—with the very important caveat that the financial institutions retain these customers over the long term. Institutions that need to see a short-term business case often serve older youth who already earn income and hold cross-sell potential.
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