2011

In May 2011, the SEEP Network, in partnership with The MasterCard Foundation, officially launched the Youth and Financial Services (YaFS) working group.  The vision of the working group is to contribute to the YaFS industry by bringing stakeholders together to produce and disseminate documentation that further contributes to the learning of industry practitioners. We hope to move beyond case studies to develop trend analyses that provide a comprehensive and overarching view of where the industry currently stands as well as where it is headed.

We are currently in the first phases of our two-year work plan and we’re working to reach out to industry stakeholders to ensure the relevance and quality of the group’s objectives and deliverables.  We’re looking for input from stakeholders like you:

What is your vision for the future of the YaFS industry?  What tools could the working group develop to help you work more effectively?  Click here to have your say by filling out a short survey before October 7^th.

We expect the working group objectives to complement work being done in the area of youth and financial services, but also provide additional knowledge in the form of learning tools and trend studies that practitioners can call upon when contemplating the design and implementation of youth financial service programming.  The group’s focus will be on formal youth financial services but will necessarily include discussion of non-financial services and savings groups insofar as they are directly related to increasing access to, and effectiveness of, financial services offered to youth. 

In June and September 2011 the working group held its first sets of meetings in Washington, DC with approximately 30 practitioners from organizations including Save the Children, Making Cents, Freedom from Hunger, MEDA, Plan International, StreetKids International, World Vision, ChildFinance, the Aga Khan Foundation, Alatoun, World Relief, WOCCU, FINCA International  and CRS.

If you have any questions or comments on the working group or if you are interested in joining us in November 2011 at the SEEP annual conference, please contact Rossana Ramirez (rramirez@freedomfromhunger.org) or Jennifer Gurbin Harley (jharley@meda.org). If you’d like more information on the SEEP Network, please visit their website at www.seepnetwork.org.

With the “golden age of behavioral research,” as New York Times columnist David Brooks recently described, comes a golden opportunity for the asset building and financial inclusion fields. Indeed, the latest breakthroughs in social science and behavioral research beg – or perhaps even force – us to think differently about poverty reduction and the policies and mechanisms that can enable it. Already, a deeper understanding of human behaviors born out of this research has inspired small tweaks in initiatives across various fields to create big changes – in health policy to increase HIV/AIDs testing, education policy to promote school attendance, and financial policies to increase savings behaviors. At the Global Assets Project, considerations of the complexities of human behaviors and their impact on social and economic lives of the poor are woven through the various threads of our work – on the psychology of poverty, conditional cash transfers, and youth savings – increasingly informing the global asset-building strategies we advocate around the globe.  

Most recently, on June 27^th we co-hosted an event with Innovations for Poverty Action (IPA) to release a new Global Assets Project paper, ”Accelerating Financial Capability among Youth: Nudging New Thinking” and to discuss Dean Karlan and Jacob Appel’s new book, More than Good Intentions. One of the major themes of the book is behavioral economics, which is beginning to shed light on how development initiatives that consider human irrationality or psychological barriers to positive financial behavior can improve the lives of the poor. Our paper extends this exploration of the human irrationality-financial behavior relationship, largely by emphasizing that psychological variables in the standard financial capability equation – financial education + access to financial services = sound financial decision-making — is grossly lacking. In actuality, temptations to consume, lack of self-control, and other psychological biases can prevent positive financial behaviors, such as saving regularly, even when a person has the ability (through financial education), opportunity (through access to financial services), and desire to do so, which should not be underestimated.

In fact, the financial choices that the poor have to make can be both emotionally and mentally draining. Click here to read more...

Sub-Saharan Africa is home to 200 million youth between the ages of 12 and 24. This number is expected to grow to 300 million over the next 20 years. Increasing young people’s access to financial services will equip them with tools to protect the money they save now, and enable them to diversify and increase their income, and access other financial services, as they transition into adulthood.  Better access to financial services and a greater ability to use them appropriately can mean greater opportunities and improved livelihoods for young people.

Successful youth financial inclusion requires that we focus on three priority areas: legal and regulatory frameworks, financial literacy and client protection.

1) Legal and Regulatory Frameworks

Research findings from YouthStart -a new initiative of the UN Capital Development Fund (UNCDF) that seeks to increase financial inclusion of youth in Sub-Saharan Africa - show that legal and regulatory constraints often inhibit Financial Service Providers (FSPs) from innovating and offering demand-driven financial products for youth.

For instance, in Uganda, the minimum legal age for signing contracts is 18, and research from Finance Trust - a YouthStart partner - suggests that this constraint forces FSPs to target youth through their parents, preventing them from designing specific products tailored to the needs of the growing youth population in their country. Research and experience support the idea that youth who hold their own accounts may have a more positive future orientation towards savings than those who hold an account with their parents.  In addition, to be effective, savings, credit and services like financial education, require careful tailoring, not only for youth versus adults, but even for younger versus older girls and boys.  Legislation that appropriately addresses age issues, particularly regarding holding savings accounts, could expand access of youth to financial services and help them prepare for a more economically secure future.

2) Financial Literacy

Another key finding of the YouthStart research shows a critical lack of financial literacy among youth. Click here to read more... 

Many MFIs may well ask themselves why they should make any special effort to serve youth savers. Youth savers may have smaller savings balances, take fewer loans, and use other financial products to a lesser extent than the average MFI client. In such cases, the business case for youth savers hinges critically on the future evolution of the youth savers. While one can never be sure of the future, it may be illuminating to examine immediately preceding past trends for clues about what the future might hold for today’s youth savers.

Consider, for example, youth who are 12-18 today. In 8 years, they will be 20-26 and many may be salaried employees or have their own businesses. They may be aggressively saving to start a family or business. Or they may already have a family or business and a greatly increased need for a personal or business loan. If the MFI served their financial needs well when they were young and still offers competitive financial services today, many former youth savers may well stick with the same MFI to address their now expanded financial services needs.

Moreover, young people with a greater ability to plan for the future may save more to start and expand a business, plan for a family, and meet other needs. And they may become more responsible credit clients.

To see how young microfinance savers have evolved in the recent past, we might undertake a data gathering exercise for youth savers along the lines of a similar exercise that Xavier Martín and I developed for small savers.