Youth savings can promote asset building
Sanderson Abel —
Access to appropriate financial services can help ease the stress associated with youth challenges such as starting secondary school or university, getting married, having children, or handling the death of a loved one.
However, finance must be viewed as part of a more holistic set of interventions, many of which are non-financial, that youth require at these different points.
For example, financing for education, whether through savings or loans, is important for youth who are going to university or pursuing vocational training. Providing youth with information and skills on saving and opportunities to accumulate wealth and assets are key factors in establishing financial stability.
Assets help to buffer against financial hardship, build aspirations and expectations for the future, and can also reduce stress. Saving helps youth to work toward longer-term goals such as college, homeownership, and retirement.
Research shows that saving and building assets in the early years also promotes educational attainment. Some policies to promote saving and asset building include financial inclusion and financial literacy.
The rationale behind the need for customised savings products for youth is straightforward: youth savings can promote asset-building, instil good financial habits in youths and improve a country’s overall gross savings rate.
Understanding the needs of youth in economic development and then determining the role that finance can play in fulfilling those needs is important.
Providing youth with safe, quality, formal financial service options can help manage the expectations of the youth if the financial tools and products offered address the specific challenges and opportunities youth face.
Proponents of youth savings argue that youth savings can promote asset-building, instil good financial habits, and improve a country’s overall gross savings rate.
Their premise is that young people should start accumulating savings early (some would argue as soon as they are born) so they can mitigate the obstacles they face to saving as they enter adulthood when they have to pay for themselves to continue their education, start a business, buy a house, etc.
A majority of youth in developing countries face a double disadvantage of being young and having low incomes. This then reduces the array of options for the youth making it very difficult for them to think about saving.
This can be managed if the financial institutions offer options to this group. When micro-finance and commercial banks offer youth saving accounts, these youngsters are then able to enter the formal financial economy, are eligible to earn interest on their savings, enjoy the safety of bank accounts, and, build certain capabilities associated with using financial services (like checking one’s account status, managing fund transfers etc.).
Most importantly once the youths are able to use the financial services, the levels of financial literacy, according to loans-lifestyle, increases in an economy.
It goes without saying that once these youngsters are old enough to use personal accounts and other forms of credit, the screening and approval processes used by financial institutions will be less bureaucratic, and a ready-made credit history will arrive.
Investing in bringing youth into the financial system at a young age should help create a generation of adults with stronger money management habits. As research in other areas of child development has shown, it is easier for children to build habits such as financial discipline when they are young.
Based on the notion that people learn best by doing and that positive behaviours and habits are best cultivated in childhood and adolescence, youth savings products may provide an opportunity to “practise” and cultivate financial capability early in life.
By acquiring a customer at a young age, financial service providers have the opportunity to be the bank of choice for this customer over his or her lifetime, as long as the bank continues to meet the customer’s evolving needs.
It is important to reposition youth savings as part of a more holistic package of financial services offered to youth. Investing in youth is often equated with investing in the future success of a community and a country.
By supporting aspiring workers, entrepreneurs, students, and young families, financial service providers can build on their brand and image as responsible corporate citizens.
Cgap in its research notes that better understanding of demand by the youth, the innovations in supply for youth products, and the recognition of the need for a protective and supportive enabling environment, the youth can be easily become financially included.
Financial inclusion is only able to improve savings mobilisation from the youth if the financial institutions are able to discern the requirements of these groups through developing appropriate financial products suited to them and the financial institutions should be able to be innovative in the way they craft the products for this group.
The public institutions should also play a complimentary role through developing relevant legal instruments protective of the savings and by making sure the environment is conducive for savings. This youth savings can play a big role in increasing national savings given that demographics are in favour of the youths.
Sanderson Abel is an Economist. He writes in his capacity as Senior Economist for the Bankers Association of Zimbabwe. For your valuable feedback and comments related to this article, he can be contacted on [email protected] or on numbers 04-744686 and 0772463008