The Case for Youth Savings

Are savings accounts a viable tool to spur development and financial inclusion for one of the world’s most vulnerable populations, low-income youth?  In May 2010, Save the Children, the Center for Social Development (CSD) at Washington University in St Louis, the New America Foundation, and the Consultative Group to Assist the Poor (CGAP) launched the YouthSave Project in order to explore this very question. One year later, on June 7^th, 2011, Consortium members gathered at the New America Foundation to share their experiences from their first year of fieldwork, research and analysis.

Michael Sherraden, Director of CSD, began the event with a keynote speech highlighting the roles Consortium members play in the Project and the supportive efforts of The MasterCard Foundation, YouthSave’s donor. Dr. Sherraden concluded his remarks with the broad framework in which YouthSave is operating: asset building and a tradition of “social innovation.” Moderator, Jamie Zimmerman, Director of the Global Assets Project, leading the Project’s engagement and dissemination efforts, then introduced the panel: Rani Deshpande, Director of YouthSave at Save the Children; Li Zou, International Director at CSD; and Tanaya Kilara, Associate Microfinance Analyst at CGAP.

Giving audience members a complete picture of what can enable, or create barriers to youth savings, Li Zou of CSD, YouthSave’s partner leading the research agenda, outlined key observations made in their integrative case studies (ICS). The ICS in each Project country – Colombia, Ghana, Kenya, and Nepal – reveals the diverse contexts in which YouthSave is operating and highlights: 1) the history and background of YouthSave’s partnering financial institution 2) the policy and regulatory environment for promoting financial services 3) barriers and challenges to youth savings 4) regulations on guardianship for youth savings accounts and 5) political, social and environmental influences on youth savings.

Tanaya Kilara added to Ms. Zou’s remarks indicating how the divergent backgrounds of YouthSave’s financial partners can affect the way they view another key component of research for YouthSave: the business case (which CGAP is taking a lead role in studying). For example, in Kenya’s increasingly competitive financial environment, partner, Kenya Post Office Savings Bank is aggressively pushing the youth market in order to build customer loyalty. In Nepal, Bank of Kathmandu is focused on the business case more from a corporate social responsibility standpoint. Ms. Kilara went on to discuss other key considerations in the business case, which are also highlighted in CGAP’s upcoming Focus Note, “The Business and Policy Case for Youth Financial Services,” namely the potential for generating product revenue through: 1) using technological platforms for product delivery to bring costs down 2) cross-selling financial products to youth over the long-term and to their community members and 3) aggregating clients through avenues, such as schools, to lower the costs of delivery.  Still, the business case is a challenging component to the Project and one that will likely not be realized in the short-term for financial institutions. But as Ms. Kilara maintained, regulators and the policy environment can work to bridge the gap of attaining the business case over the long-term.

Rani Deshpande stated that Save the Children has been the youth advocate in the “push and pull” with financial institutions, so that young people’s wants and needs are met, but in a financially viable way. Market research in the four YouthSave countries, led by Save the Children (also the coordinator for the entire Project) provided several insights on how youth preferences can shape account features. According to market research findings, youth expressed 1) “illiquidity preferences” and need for assistance in saving or controlling spending, thus informing the design of account features with withdrawal disincentives or restrictions 2) concern with emergency access to money in Nepal, for example, where youth reported experiencing emergencies up to three times a year and 3) the need for education on money management. This third and final point also links closely with YouthSave’s current thinking on financial capability.

Given the minimal, hard evidence on the impact of financial capability programming on low-income youth in developing countries, Save the Children relied on experience from the field and a global scan of innovative projects to inform their future financial capability efforts for YouthSave beneficiaries. Overall wisdom from the field and research indicated that the programming should be simple, engaging, fun, and provide a youth flavor. To that end, financial capability programming will include some combination of high and low touch efforts including 1) training and workshops 2) SMS-based campaigns 3) peer-to-peer mentoring 4) pre-sensitizing parents to the concept of youth saving and 5) use of internet platforms and games.

In closing, the presenters highlighted what they view as the major challenges ahead, namely, piloting the savings prototype, making sure that the research is high quality, and overcoming the regulatory barriers to youth owning and operating savings accounts. Lastly, the panelists left audience members with their key takeaways as they move forward with the Project: 1) youth are saving 2) international collaboration with research partners is instrumental for the research agenda and 3) dialogue with regulators must continue to create a space for innovations and experimentation in youth savings.

Participants