Linking Youth Transitions to Financial Services
There are an estimated 1.2 billion young people around the world between the ages of 15-24, with the vast majority living in developing countries. As a sign of global economic progress, global mortality rates have declined much faster than fertility rates, producing an unprecedented “bulge” in the population of young people -- -- a fundamental development challenge impacting the vast majority of the developing world for the next two decades. According to a new report released by the Multilateral Investment Fund, 148 million youth in Latin America are below the age of 30 and in many countries over 60% of the population is under 30 years old. Whether countries are able to harness the potential of the vast numbers of youth in their economies will depend in part on how they manage the individual transitions that youth make in their lives.
The World Development Report 2007 proposed transitions as a common framework for youth development. All young people, regardless of region, socio-economic conditions etc. go through transitions with regard to learning, working, health and starting a family. In the lives of lower income young people, however, these transitions happen earlier and in a compressed timeframe, with many transitions happening simultaneously. A young girl in the favelas of Rio might be in school, but is likely to also be working part time to support herself. In addition, she may have children and a family to care for. Market research conducted with close to 2500 young people between the ages of 12 and 18 as part of the YouthSave project shows that youth who are currently in school as well as those out of school engaged in remunerative activities, with the latter tending to work more and be more reliant on it for income.
Recognizing the complex reality of these transitions helps us to better understand how financial services could support these transitions. Finance can play a role at these points of transition, as long as the financial tools and products offered reflect the specific challenges and opportunities that youth face. For example, in the learning transition, youth and their families have a need to be able to save for educational goals and may also need to access credit when they require access larger lump sums. In the transition to work, financial services can help youth pay for skills acquisition; insurance or savings could help them against sudden loss of work or prolonged employment. Developing a more nuanced understanding of the needs of young people can also ensure that financial and non-financial services be more smoothly interwoven. This is a dynamic approach to the development of youth financial services.
However, financial services are not readily available to youth. The recently released Global Findex report indicates that those aged 15-24 are 33 percent less likely to have an account and 40 percent less likely to have saved formally as compared to those aged 25 and older.
Moving forward, there are opportunities for research, experimentation and policy intervention. For example foundational research can help explain the links between youth transitions and finance. Experimentation at the product and country levels that shed light on what products work best for each transition and under what conditions, as well as focused policy interventions that further youth protection and financial access would go a long way towards bringing financial innovation to the youth.