Youth and Children: FAQs

According to the UN, the global population of young people is the largest in history – there are about 1.8 billion youth aged 10 to 24, with almost 9 out of 10 living in less developed countries. This represents a significant untapped potential for social and economic development of future generations.

Research has shown that financial inclusion is positively correlated with economic growth and employment.  It is also seen as a powerful instrument to increase financial stability, stimulate growth and help fight poverty.  When it comes to youth, a range of studies across the world demonstrate positive outcomes of financial inclusion, such as greater savings and financial wealth, increased financial knowledge and skills, improved psychological, reproductive and sexual health, greater academic achievements, educational attainment and life expectations. In addition, even greater results can be achieved by combining education with financial inclusion, in particular, savings accounts. Findings highlight positive impacts on financial literacy and account uptake, a child’s decision-making and the likelihood of youth to obtain a job, an increase in savings volumes and active use of financial products.

Despite the general consensus and ample evidence on the benefits of financial inclusion, a great number of children and youth throughout the world still do not have access to child- and youth-friendly financial products and services. Globally, only 46% of youth (aged 15 to 24) have an account at a formal financial institution, compared with 66% of adults (aged 25 and above). The figures are even more profound when examining savings behavior. Just 18% of young people have saved formally in the past year, compared to 30% of adults. In terms of credit, 5% of youth have borrowed formally, compared to 12% of adults.

The reasons why children and youth are underserved by financial service providers (FSPs) are manifold and may vary from one country to another. First of all, regulatory and legislative barriers tend to be the biggest constraint to financial inclusion. The minimum age and proof of identity requirements for opening accounts prevent young customers from accessing financial services. Not being able to independently own and manage one’s bank account can be discouraging, especially to young customers.

Second, FSPs often incur higher transaction, transportation and opportunity costs in countries with poor infrastructure and networks. Thus, vulnerable clients, including children and youth, remain underserved.

Third, considering children and youth have their particular characteristics and unique needs, some financial products and services may not always be suitable or attractive for them. Studies have shown that young customers tend to have irregular income and make small deposits – leading to the perception of this segment as a risky option as opposed to a mature market segment. 

Fourth, limited financial capacity and experience of children and youth themselves can hamper their access to the financial system. With a limited knowledge of how financial services work and how one can effectively benefit from them, youth are prone to be detached from the financial system.

According to a CYFI study (2015) that surveyed banks in Central and Eastern Europe, legislative and regulatory barriers were mentioned as the most significant ones preventing FSPs from targeting minors and youth, followed by low levels of financial literacy, low interest of youth in financial matters, and lack of disposable income.

Last but not least, while seeking funding to start and grow their businesses, youth might have unrealistic expectations about their business needs and lack the requisite business experience or credit history.

Government authorities leading national financial inclusion efforts can contribute to promoting youth financial inclusion, but so far only a handful of countries have singled out children and youth as a specific target group within their national financial inclusion strategies, with Peru, Nigeria, and Zimbabwe being illustrative examples. Furthermore, thanks to the joint efforts of central banks, financial service providers and civil society organizations, a minimum age for opening a bank account has been successfully lowered in countries such as Colombia, Uruguay, the Philippines, India and Mongolia. In addition, interventions to accept alternative proofs of identification have been seen in Uganda, Ghana, Kenya, India and Nepal, making it easier for children to establish bank accounts in their name and actively use financial services.

Global efforts to scale up the financial inclusion of children and youth require funding. Funding institutions, including government agencies and foundations, can initiate efforts for including youth financial inclusion on the priority agenda, and support programs related to financial literacy, the development of new and innovative financial services for youth, and other relevant programs.

In addition to playing a crucial role in implementing youth financial inclusion initiatives, civil society organizations, as well as private companies, can contribute by providing consulting services, (online) resource hubs, organizing relevant conferences and events, and raising awareness about the issue.

The particular characteristics of children and youth, such as age, gender, life-cycle stage, cultural background, and financial situation, must be taken into consideration when designing financial products and services to meet their needs. Market research can help FSPs create more sustainable child- and youth-friendly products and services, leading to more active usage and better financial behavior among young customers.

Studies have identified a set of characteristics of youth preferences for formal financial services in developing countries. However, these elements may also be relevant for developed countries considering that not all banks offer child- and youth-friendly products and services yet. The following is a summary of the common characteristics:

• Affordability. This is one of young people’s primary concerns about using financial services.
• Access. Youth prefer easy access to make deposits and withdrawals at any time.
• Interest on savings. Although not ranked as the highest priority and dependent on the cultural context, young people prefer to earn interest on their savings.
• Limits and restrictions. To prevent misuse or misspending of money, young users positively perceive limits and restrictions on their accounts.
• Opportunities. Older youth attach value to credit opportunities offered by FSPs.
• Client privacy and safety. Young people want to be able to operate their own accounts independently of their parents, and to have safeguards in place for their money.
• Proximity and convenience. They need to minimize travel and costs associated with using financial services.
• Simplicity. Youth prefer less paperwork or document requirements to open an account and make transactions.
• Transparency and Tracking. Youth want clear information on product terms and conditions, and want to know the amount in their accounts.
• Youth-friendly customer service. Feeling respected and welcomed by financial institutions is also seen as one of the essential prerequisites for youth using formal financial services.

Integrating every single one of these preferences into product design may not be sustainable or realistic for some institutions. Therefore, FSPs should carefully weigh these preferences against their institutional capacity to determine the feasibility and financial sustainability of a product.

Definitions of a child- and youth-friendly product may vary across institutions and countries. Child & Youth Finance International (CYFI), a global multi-stakeholder network promoting economic citizenship for children and youth, defines a child- and youth-friendly product as one that focuses on asset accumulation, financial management, and skills development, while respecting and supporting children’s rights. CYFI believes that a child- and youth friendly product should be complemented by an Economic Citizenship Education (ECE) component, combining financial, social and livelihoods education for children and youth. To ensure that a savings or current account protects youths’ savings, financial institutions should ensure that product features are consistent with a number of Child and Youth Banking Principles presented in the graph below.

As they grow, children develop their capacity to take on more complex information and make rational decisions based on the information available. They develop intellectually, learning to understand concepts such as money and its value, and to distinguish between good and harmful financial behavior. They also begin to internalize savings habits.  

Children’s control over how they manage and spend their money should increase with age and financial knowledge. Research suggests that children, especially young ones, may perceive savings accounts as theirs if these accounts are in their names and if children are able to interact with their accounts. Findings demonstrate that when children have savings accounts earlier in life, they are twice as likely to own savings accounts and credit cards as young adults, and four times as likely to own stocks. These findings support the idea that children should be introduced to safe and reliable financial services at an early age.

By the same token, a recent study on the effectiveness of child development accounts emphasizes positive effects on high school-age students’ fiscal prudence, future orientation, sense of security, and financial knowledge. These findings also suggest that high school-age students and older youth are willing to save when financial products are offered by trusted institutions with firm ties to students’ communities. In the context of access to, and use of, financial services, the age of 15 plays an important role as it often marks the end of compulsory education. At this age, young people make important decisions on whether to continue with further studies or start a job. Whichever decision they make, it will have financial implications on their future lives and careers.

CYFI provides recommendations on how financial access can fit in to the various stages of a child’s development (see table below). As children grow older and take on increasingly complex information and responsibilities, parental oversight over their financial behavior should loosen. Naturally, each young person follows his/her own path, but the age ranges can be used as a reference to guide access to financial products for children and youth.

Little has been published on the protection of the rights of child and youth consumers of financial services. Key global actors in creating and promoting international client protection standards in financial markets, such as the World Bank and the Organization for Economic Development and Cooperation (OECD), do not segment children and youth as a separate consumer group.

However, some organizations have been working to bridge this gap. As part of the YouthStart project in Sub-Saharan Africa (2010-2015), UNCDF and Mastercard Foundation produced a technical note on client protection for youth customers, laying out the Client Protection Principles:

1. Appropriate product design and delivery. The financial institution designs products that are appropriate to client needs and do not harm.
2. Prevention of Over-indebtedness. Providers take adequate care in all phases of their credit process to determine that clients have the capacity to repay without becoming over-indebted.
3. Transparency. Providers communicate clear, sufficient and timely information in a manner and language clients can understand so that clients can make informed decisions.
4. Responsible Pricing. Pricing, terms and conditions are set in a way that is affordable to clients while allowing for financial institutions to be sustainable.
5. Fair and Respectful Treatment of Clients. Financial service providers and their agents treat their clients fairly and respectfully.
6. Privacy of Client Data. The privacy of individual client data is respected in accordance with the laws and regulations of individual jurisdictions.
7. Mechanisms for Complaint Resolution. Providers have in place timely and responsive mechanisms for complaints and problem resolution for their clients and use these mechanisms both to resolve individual problems and to improve their products and services.

Adapted from the Smart Campaign, and in line with the Child and Youth Friendly Banking Principles, these principles emphasize the young consumer and guide him/her in being aware of and responsible with personal finance.

As digital financial services make access to payment products easier, quicker and more convenient than ever, these products play a central role in creating greater access to financial services, as well as providing education, particularly for children. In 2017, building on the Child and Youth Friendly Banking Principles, CYFI and Mastercard developed recommended practices for developing age-appropriate payment products for children up to 18 years of age, presented in the graph below. The practices address responsible spending and financial decision-making while incorporating functionalities that allow for parental guidance towards a child’s financial autonomy. 

Yes, youth financial services can be sustainable for financial service providers, especially if they take a long-term, holistic view of sustainability which takes into account the growth of youth customers into loyal adult customers, and cross-selling opportunities to other family members.

To delve further into this question, CGAP has designed a framework for developing youth financial products in a more sustainable and inclusive manner. The framework considers three different levels which reflect the internal and external contexts of financial institutions - market, institution and segment – and analyzes different costs and revenues that affect the FSP’s decision-making process around offering savings products for young people.

This framework has been applied across different financial institutions worldwide. A CGAP study involving banks in Mongolia, Germany, and Nepal showed that the marketing and operational costs of offering banking products to children and youth were substantial compared to the revenues generated from offering these products. As a result, the banks struggled to cover the expenses of such products despite lower costs of client acquisition. However, the banks involved in the research took a long-term view, expecting to become sustainable and increase profits in the future as their clients become adult customers. They also saw the opportunity to increase profit by cross-selling products to the family members of young clients. However, despite the importance of the business case and sustainability, the banks’ social mission was their main reason for launching banking products for children and youth.

Findings from the UNCDF YouthStart program in Rwanda, Burkina Faso, and Malawi demonstrated that the business case is stronger in highly competitive environments, and is positively affected by stable, high GDP growth and low inflation. In addition, countries with a youth bulge, in particular urban youth, represent an untapped market for FSPs.

In terms of the financial viability of offering integrated financial services, studies in Mali and Ecuador demonstrated that institutions are financially sustainable as long as they maintain variable costs to a minimum, leverage higher profit margins from older youth, and cross-sell products to youth’s family and friends. Further, studies demonstrate that most of the financial institutions have the potential to achieve profitability within five years or less without grants, and even faster with financial support. Finally, other reports show that FSPs need to make a trade-off between greater profitability linked to products offered to older youth and the lower financial capacity of younger youth.

Financial service providers have expanded their traditional service lines by introducing a number of fintech solutions which can greatly simplify and improve access to financial services through smart devices, mobile apps, and online services. Driven by high levels of technological literacy among today’s adolescents, these new products have gained unprecedented popularity, putting pressure on traditional banking institutions.

For example, Bank Polski (Poland) offers a children’s online bank consisting of electronic current and savings accounts with integrated gaming and social elements. Children can also use a prepaid debit card featuring the images of popular characters to make online and offline payments and withdraw cash. Other banks, such as AK Bars Bank (Russian Federation) and Bank of Georgia (Georgia) offer prepaid cards and smart wristbands which can be used to gain entry to school, make retail purchases, and pay for public transportation and school meals. Considering the growing importance of consumer protection, some banks also use a biometric authentication system based on palm vein pattern recognition technology to boost the security of both adult and child banking products and services.

While fintech products are currently more available in developed countries, some emerging markets have seen mobile money solutions take hold. In Kenya, M-SHWARI is a combined savings-and-loan product operating on Safaricom’s M-PESA mobile money platform. Despite SIM registration requirements, it has the potential to include youngsters in a cost-effective manner. In India, Togo and Colombia, mobile services are used to link non-formal savings groups to financial institutions as well.