National Strategies for Successful Youth Financial Inclusion

Originally posted on the YFS-Link Portal.

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 peoples’ 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.

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 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.

Another key finding of the YouthStart research shows a critical lack of financial literacy among youth. While financial education is widely desired by youth, few have the opportunity to access it. Additional research has shown that the impact of financial literacy training is greatest when provided alongside opportunities to practice what has been learned. Government-sponsored campaigns have proven effective for changing behavior in critical health issues such as HIV/AIDS. Africa must start to invest in similar campaigns that give their young people the knowledge, skills and attitudes that will not only enable them to make sound financial decisions, but will also teach them how to maximize the financial services they use.

Finally, YouthStart research indicates that youth are more vulnerable than any adult population to fall prey to reckless lending practices, due in part to lack of financial literacy. Therefore, key stakeholders (financial service providers, governments, funders, etc.) should actively promote access to safe and fair financial products for youth. Client protection principles such as the ones promoted by the Smart Campaign (like putting access limits for legal guardians and measures to prevent misuse of the savings account by guardians) and Child Finance International should be adopted by FSPs, promoted by industry players such as associations, raters, and funders, and taken into consideration by governments when developing or adapting policies and regulatory frameworks to increase youth access to financial services.

For any society to be prosperous and stable, it must address and put an end to the root causes of exclusion. This is particularly true when those who are excluded are, literally, the future. Addressing the issues preventing youth financial inclusion should be a priority on national and global agendas.