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Youth Financial Services: Changing the mindset

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With an estimated 1.2 billion young people between the ages of 15 and 24, the vast majority of them living in developing countries, youth are both a policy and political priority for many countries around the world.

An increasing number of governments are turning to youth financial services. Access to financial services—savings, payments, credit and insurance—can help young people to build assets, protect themselves against risk, and it can unlock economic potential. Yet, the World Bank’s Global Financial Inclusion Database (Findex shows that youth are 33 percent less likely to own a bank account than an adult.

Last week we asked you for questions to put to policy makers gathered at a CGAP event in Paris to discuss what can be done to improve opportunities for youth through financial services. This video shows policy makers’ responding to the question: “Why youth financial services?”

Policy makers from eight countries around the world and a range of different government departments including ministries of Education, Finance, Youth and Sport, as well as Central Banks, agreed that youth financial services represent a largely untapped opportunity to address social issues in their countries.
But equally failure to address issues of youth unemployment and other ills faced by the large number of young people in the world today could result in major social unrest, warned Ashraf Gamal El Din from Egypt Post.

Change of mindset
Most banks see youth as a risky proposition—young people generally have no business or financial experience, and often little collateral. A “change of mindset” is needed in how we look at youth and their bankability, said Mukhmeet Bhatia of the Indian Ministry of Finance. And so most policy makers agree there is an important role for governments to play in encouraging youth financial services.

In the UK, with large numbers of youth unemployed, the government is backing a start-up loans scheme to help young people aged 18-30 who can’t get loans from banks to start new businesses. They hope to make youth businesses a driver of the troubled UK economy. But the Start-Up Loans scheme, chaired by celebrity angel investor James Caan from the TV reality show Dragon’s Den, doesn’t just offer credit. Non-financial services such as mentoring, training, and help with business development are all critical pieces in making sure such schemes are successful and that young people grow successful businesses so they can pay back the loans.

Financial education plays an important role in making young people active and responsible users of financial services. The Philippines Central Bank has invested in a significant financial education program, as well as a partnership with the 12 main commercial banks in the Philippines to promote kiddie accounts. To promote youth savings they also had to first remove regulatory barriers to youth accounts by dropping the age at which it is possible to open a bank account to seven.

Future customers, citizens of the future, creators of their own destiny
Policy makers acknowledge the difficulty of getting banks to see youth as an opportunity, rather than a risk. And for that reason, governments will have an important role in changing the current mindset. The argument won’t be made through quick returns, but long-term investment in the future:
“They are your future customers, future citizens,” said CGAP’s Tanaya Kilara. “I think everything you do with youth has higher returns in the long term. You might not see it right now. You might not see it tomorrow. But you will see it over their lifetime.” For Ruth Dueck-Mbeba of The MasterCard Foundation it’s about making youth creators of their own destiny so that they create new opportunities and “grow the pie”, rather than being reliant or dependent on existing resources.