The Business Case for Youth Savings: A Framework
Financial service providers (FSPs) should not ignore the financial needs of young people. Today, youth under age 25 represent nearly half of the world’s population (UNFPA 2005); tomorrow, they will be adults in need of financial services. Offering youth formal financial services, especially savings accounts, is likely to pay off for FSPs in the long term as these youth become adults who need other services and who are comfortable in the formal financial services environment.
However, despite this potential, there are unique challenges to banking youth. Youth are harder to reach through traditional channels, they are price sensitive, and their accounts tend to have very low balances. In many countries, documentation requirements can be a barrier to youth entering into the formal financial sector. Given these challenges, many FSPs are wondering whether it makes sense to offer youth savings from a business case perspective, and if so under what conditions.
Currently, few FSPs in developing countries target youth specifically, and for those that do, youth often represent a small part of their overall operations. An exception is Kenya Post Office Savings Bank (Postbank), a large state-owned bank in Kenya. Postbank operates in a competitive market where 43 percent of the population is younger than 15. Postbank’s challenge was that its average customer profile was aging. Entering the youth market helped it to attract a younger customer base to the bank and keep Postbank relevant. Since launching its SMATA Account in 2012, Postbank opened approximately 70,000 new savings accounts directed explicitly at adolescents. However, Postbank notes that youth are difficult to bank, despite their large potential to become and remain customers. For example, many youth struggle with obtaining documentation. They are also price-sensitive, discouraged by even small fees on accounts, and their accounts tend to have very low balances. Despite these challenges, the youth accounts in the bank are growing at an increasing rate.
While it is easy to argue the social value of extending financial services to youth, the business case question is more uncertain. As more FSPs have entered the youth market, the question has been whether they can offer youth savings products sustainably. In other words, is there a business case for offering youth savings products?