Paying Grown-Up Attention to the Financial Service Needs of Youth

The following article, written by YouthSave's very own Rani Deshpande of Save the Children, originally appeared on CGAP.

Despite growing interest in youth financial services as a means to financial inclusion, until recently there has been previous little publicly available information on what youth in developing countries want from financial institutions. YouthSave, a consortium of four practitioner and research organizations, sheds new light on this question using market research conducted in Colombia, Ghana, Kenya and Nepal.

The YouthSave research included almost 2500 respondents – mainly youth ages 12-18, but also parents, teachers, and other adult “gatekeepers”, in recognition of the important influence that adults wield over youth financial behavior. This research formed the basis for designing teen-friendly savings products that YouthSave and its partner banks will roll out in Colombia, Ghana, Kenya, and Nepal.

Using mainly qualitative tools such as in-depth interviews and focus groups, the studies explored youth cash flow patterns; attitudes, aspirations, and practices vis-à-vis saving; and their interest in financial education topics. They also examined other issues germane to designing and delivering a youth-friendly product, including how youth like to obtain information, their mobility patterns, and their attitudes to and perceptions of banks.

Family provides most youth income, but patterns vary

The research uncovered that youth typically have two sources of money with varying cash flow patterns. The first is small but relatively regular inflows of money that comes mainly from parents, especially for in-school and younger youth, often destined for buying lunch or snacks at school. The second is larger, though much less frequent, and usually takes the form of gifts around holidays or in-migration times, and may come from parents or other family members.

Although parents were the dominant source of income across all countries studied, working for pay was also prevalent, especially among out-of-school youth. Commonly reported occupations included petty trade, working in shops, and domestic labor, as well as seasonal agricultural work in rural areas.

Youth primarily spend their money on basic personal needs: food, basic clothing, and transportation. For in-school youth, school supplies are another routine expense. Less frequently mentioned, but still common expenditures, also included contributions to household expenditures and savings.

Most young people save informally

The majority of young people in the studies reported setting money aside from time to time. Their savings goals tended to be a mixture of long-term and short-term. Short-term goals were dominated by meeting the need for school supplies and family expenses, but also included personal expenses such as clothing. Among long-term savings goals, the most commonly mentioned was further education, though business start-up was also common among out-of-school youth. Straddling the two categories, saving for an emergency was also an exceedingly common goal among market research participants.

The vast majority of respondents save at home, for example in a piggy bank, in cash hidden around the house, or with a “trusted other” of some sort – a family member, friend, or even a local shopkeeper. Saving through clubs or with teachers at school was also mentioned. Extremely few youth reported saving in any kind of formal financial institution, and most of those were in Nepal, where some local cooperatives have targeted younger clients.

Savings through informal mechanisms meet youth needs in a number of important ways. First, they obviate the need for documentation like birth certificates or citizenship cards required by formal financial institutions and which can pose an even greater barrier for low-income youth than for low-income adults. Informal mechanisms can also afford a considerable degree of privacy regarding one’s savings, a preference that emerged quite strongly in several of the countries studied. And perhaps most important, informal savings mechanisms provide the accessibility that youth – like many low-income clients-–value so highly, especially for emergencies. In the words of one Colombian respondent “If you need money for something, it’s already there.”

The advantage of easy accessibility also has a downside. Youth find it difficult to accumulate larger savings balances over a longer term. For one, they reported that cash saved at home was particularly vulnerable to theft or loss. They also were aware of the temptation or pressure to spend cash on hand. Many youth therefore expressed illiquidity preferences in the design of a savings account, for example wanting some portion of their balances in a fixed deposit, or being willing to trade access to their funds in return for lower fees. While a preference for illiquidity has been a common finding in studies of adult low-income savers, we were somewhat surprised to see this same sentiment expressed among youth as well.

Designing appropriate products

A compelling value proposition that financial institutions can offer young people may therefore be through savings products that enable them to keep their funds secure and build a financial asset, while maintaining some flexibility for emergencies.

Security manifests at different levels, through the soundness of the institution as well as the design of the product. Features that make withdrawing difficult can protect savings from the saver. But protecting savings from other people is more complicated in the many countries where youth are not the legal owners of their accounts. Generally, anyone can make a deposit into a savings account, but only the legal owner can make a withdrawal. Depending on a country’s regulations, that owner is often the parent or legal guardian.

The issue of adult involvement is one of the key operational factors that most distinguishes youth savings accounts from small-balance adult accounts – and it can exert both positive and negative influences. On one hand, joint adult ownership or custodianship of youth savings accounts can foster dialogue about money within families, contributing to increases in financial capability among both youth and adults. On the other, parents may see accumulating savings in the account as a threat to their authority over their children, or may even be tempted to appropriate a youth’s savings. Adult access to these funds must therefore be carefully ring-fenced, to the extent possible under prevailing laws.
Other key attributes the market research indicated youth would most like in a savings product should sound familiar from studies of low-income adults, though sometimes with a particular youth “twist”. Products should be made available close to where clients are; for youth, schools stand out as a particularly important aggregation point. Bank staff should be approachable and welcoming – but to serve youth clients, must know how to overcome age-related communication barriers in addition to client unfamiliarity with banking services. And products should of course be affordable – though interestingly, the market research revealed that youth were more concerned about transparency of fees and costs than their existence per se.

YouthSave partner banks respond to youth demand

The youth preferences and capacity levels emerging from YouthSave market research call for products that are low-cost, offered where youth are, by staff who know how to interface with young people, in a way that carefully manages adult involvement. A tall order indeed – but not impossible. YouthSave’s four partner financial institutions have been working to design and delivery products that meet these needs: ensuring product affordability, innovating account opening and transaction processes, trying new delivery and marketing mechanisms, and training staff on how to talk to youth customers. Three out of four YouthSave partner banks are now piloting products based on the market research, with rollout in all four countries planned for early 2012. Underlying these efforts is a common commitment to cultivating clients for the long-term.

YouthSave believes that this investment will pay off in multiple ways. By using youth savings as a “gateway product”, banks may be able to achieve deeper, longer lasting relationships with the next generation of people needing access to safe, secure, and convenient savings, alongside other financial services. And that next generation could grow up better equipped to use a variety of tools to plan for the future, achieve savings discipline, and manage their financial lives – interfacing with the financial sector in a safe, savvy way that is productive for clients, banks, and society.