This blog in our series Regulatory Environments for Youth Savings in the Developing World will address two critical barriers that youth in the developing world encounter when attempting to save through formal financial institutions. The first is their inability to provide adequate documentation to satisfy accountholder identity requirements in most countries, and the second involves the age-related prohibitions on youth account ownership and control. In our research, we generally encountered these two prohibitions to be, from the standpoint of financial institutions, the most consistent regulatory barriers to financial inclusion for youth between 12 and 18 years of age. Representatives from financial institutions that we interviewed told us, for example, that they had turned youth who sought solitary ownership of their accounts away because of regulation that required youth under the age of 18 to have an adult co-signer. Research also expansively demonstrated that large numbers of youth in the developing world lacked government-issued identity documents, which, without the flexibility introduced through projects like YouthSave, bar youth from opening accounts. Youth, too, have been documented to desire a high degree of autonomy over and control of their accounts. Our brief, then, addresses some specific changes to regulations that will create more-supportive regulatory environments for youth savings at financial institutions.
The first set of recommendations revolves around identification requirements that youth must meet to open savings accounts. These recommendations are rooted in recognition that in many cases youth are unable (due to logistics, administrative costs, or financial costs) to secure government-issued identification documents that prove their identities and dates of birth. The recommendations also reflect the fact that low-balance youth accounts generally pose a lower risk to banks of the kind against which Know Your Customer (KYC) regulations were designed to protect. In other words, low-balance youth accounts are less likely to be used to launder money or fund terrorism. Consequently, while we support national and international efforts toward universal birth registration and documentation systems, we recognize the need to create interim solutions for youth who lack documentation for the purpose of youth banking. Our brief proposes flexibility and outlines a range of policy options that can effectuate the recommendation to establish alternate forms of identity verification for youth, particularly minors, in order to create policy environments that are friendlier to youth savings at financial institutions. Among these options are allowing youth to provide identification in the form of a letter from an authority, for example, or instituting a tiered Know Your Customer framework, with each threshold increasing identity requirements in a way that corresponds with the likely risks these accounts pose to financial institutions as youth advance through the higher tiers of ownership. We also suggest that a way to further safeguard financial institutions’ interest in knowing who their customers are, could be by requiring photography at account opening and/or retaining more-stringent identification requirements for co-signers in situations where co-signers are needed.
The second set of recommendations relates to account control. Both behavioral economists and youth themselves favor youth having the maximum, age-appropriate control over their accounts possible at every stage: account opening, account management, and account closure. To that end, our brief encourages regulatory changes that would enable youth to own and manage their accounts with as much flexibility as possible. These recommendations include allowing for alternative co-signer arrangements when parents and guardians are unavailable to co-sign on an account, multiple co-signer arrangements to facilitate access for youth who do not reside with parents, decreasing the minimum age for account opening and management, and well-designed school banking efforts, or other efforts that “take banks to youth.” To protect youth and financial institutions, we note that as policies around access and management are made more flexible, there will be a greater need for a solid, protective regulatory framework and adequate oversight.
