Mobile Phones for Microsavings: Can Mobile-Enabled Savings Products Bridge the Youth Financial Services Gap?

The following article originally appeared on the Center for Financial Inclusion Blog and can be found here.

Many of the challenges to saving faced by the world’s poorest people were highlighted in the recent Washington Post article, "Microsavings Programs Build Wealth, Pennies at a Time." Among others, the article articulated two especially salient points around microsavings: 1) we know the poor save, and 2) savings can help poor people withstand shocks to their income (such as unexpected medical emergencies or job loss) without going further into debt and poverty. However, low-income people tend to rely on informal methods of savings, often putting their money at risk of being lost, stolen, or ruined by floods or rodents. Having a safe, reliable place to save is both beneficial to and desired by the world’s poorest people.

The article included a link to a research study on savings I conducted while at the Grameen Foundation last July. I spent a month in hot, humid, and rainy Varanasi, India, on behalf of Grameen’s Microsavings Invitative, where I had the privilege to meet dozens of Cashpor Microcredit borrowers and savers. Cashpor Microcredit began offering microsavings in July 2011, using mobile phones to bring savings services to its poor, female clients. Curious about whether the mobile phone acted as a barrier to the savings services, I spoke with 65 women who either were current savers or wanted to become savers with Cashpor. My research revealed that Cashpor’s savers faced many challenges to saving, and one of these challenges was the mobile phone. Most women had limited or no access to a phone and many had limited numeracy and literacy. This, combined with low self-confidence, meant that they turned to others, often family members, including children, for help using the devices.

It’s not just low-income adults who can benefit from formal savings mechanisms. Youth can as well. Many youth around the world have access to small, erratic incomes, either as an allowance from their parents or from odd jobs - particularly if those youth are not in school. Low-income youth face many of the same challenges as adults face in terms of informal saving, but in seeking formal savings services, youth face unique regulatory barriers and knowledge deficits that keep them from being able to use formal services when they’re available. These problems are particularly pressing when considering the potential for impact. It is a given that learning to save early and having formal savings accounts help youth manage their income flows and transition into adulthood more easily.

As with their adult counterparts, mobile phones are widely seen as a potential vehicle to bring financial services to low-income youth. This summer, New America Foundation’s Global Assets Project, a member of the YouthSave Consortium, will publish a paper that highlights the promise and challenges to using mobile solutions to accelerate financial capability among low-income youth. The paper will provide an overview of current thinking and experiences as well as data from a pulse-taking survey that consults leaders in the youth financial services field. The paper aims to uncover what the youth financial services industry doesn’t yet know about how mobile phones are being used by youth and by the institutions who seek to reach them. Some important questions that will be addressed are:

1. Are mobile phones the most effective tools to reach youth?

2. Do the lessons learned around adult access and usage of mobile phones apply to youth?

3. How do we bridge the gap between financial services and youth in strict regulatory environments which limit their access to basic tools like SIM cards?

While surveying savers in India, I found some surprising results, including on children’s involvement in their mother’s use of the phones. I asked each woman if she used her phone with her children and if her children knew how to use a mobile phone. A majority of women said not only did they use their phones with their children, both boys and girls, but that their children taught them how to use the phones. Considering that a vast majority of children have no exposure to technology in schools, this is an incredible fact and one that illustrates how much potential youth have to learn new technology and possibly increase their access to financial services through its use. Our paper begins with the firm belief that children and youth across the globe have the capacity to use mobile phones, regardless of literacy, numeracy, and level of education. The challenge remains to develop products that are appropriate for youth while providing them with the financial education needed to properly manage their finances in a formal system.