Riding Financial Inclusion Disruption: Are Youth Savers the Surfers or the Wave?

The following article, written by YouthSave's very own Rani Deshpande of Save the Children, originally appeared on the Center for Financal Inclusion Blog and can be found here.

Two big financial inclusion gatherings in Europe a few weeks ago turned up the volume on bringing more people into the formal financial system — safely, meaningfully, and fast. With big trends poised to change the financial inclusion landscape, how can we harness them to expand savings opportunities for young people?

In London, the FI2020 convening brought together a who’s-who of leaders from the worlds of politics, banking, and microfinance as a culmination of the 18-month “roadmap to financial inclusion” process led by CFI. Discussions here centered largely on the biggest disruptive trends ensuring that, to paraphrase one speaker, financial inclusion will change more in the next 7 years than it has in the last 30. The comment reflects the general tone of the conversation, which was one of impatience or perhaps anticipation at this “inflection moment” created by the convergence of technological development and market dynamics.

According to CFI’s Mapping the Invisible Market study, the income of the bottom 40 percent of the world’s low- and middle-income economies will grow from $3 trillion to $5.8 trillion from 2010 to 2020. At the same time, other panelists pointed out that access to information (through mobile phones), the use of big data, and customer-centricity are creating game-changing new ways to reach and serve poor customers. In order to take advantage of this opportunity, one panelist urged the audience to “stop ‘innovating’ and start listening to clients” or to keep innovation “brain-dead” simple so that it can easily scale (critical given generally thin margins for BoP services). Usage, as opposed to access, was also highlighted as the new frontier of inclusion, with almost 50 percent of adults possessing accounts but only 7 percent in the developing world using them actively (> 2 transactions per month).

YouthSave and others in the field have long subscribed to customer-centricity principles, in many cases introducing partners to market research that involves target clients firsthand. And certainly there has been much discussion about the potential of mobile phones, but as the New America Foundation has written, also many challenges to really making this technology work for youth. Now, we also have a growing set of “big data” of our own: the Center for Social Development at Washington University in St. Louis’ Saving Demand Assessment (SDA) database, which we’ve highlighted the latest findings from in our recent blog series.

One of the recent SDA findings is that for both uptake and usage, how kids learned about and accessed their accounts was far more important than who they were. This echoed a key point made at the second convening, the Global Policy Research Symposium to Advance Financial Literacy. Here, Sheldon Garon provided a fascinating overview of the role that school banking, which combines financial education with actual money management, has historically played in promoting youth financial capability. According to Garon, the most successful school banks achieved universal coverage, often by involving postal or national savings banks willing to handle small transactions. While these systems were once common around the world, the complexities of managing postal banks and growing competition in the banking industry have rendered them a rare phenomenon. How ironic that we at YouthSave find ourselves coming back to a very similar combination of mechanisms to achieve maximum outreach to young people.

The bigger question, then, may be how to use the big financial inclusion disrupters to, in Garon’s words, “update the school bank”. Insights from youth-inclusive market research and the SDA can guide us on what young people want in savings products and how they actually use them. And several of our partner banks are currently working on ways to not only bring the school bank into the 21st century, but go beyond schools as well. If we can crack that nut, then youth savers could not only be beneficiaries of financial inclusion disruption, but a key vector of it as well.