Financial inclusion—why young people need to be able to use banking products and services, not just be given access to them
It is increasingly understood that financial literacy is a combination of “knowledge, understanding, and skills”57 and is defined as “the ability to understand and use various financial skills, including personal financial management, budgeting, and investing.”589 Across stakeholders that directly provide products and services, it was clear that “ability” is as important as “access.”
We began with access—it was all about access to financial services, and then it became Access Plus financial capability, the ability to use financial services. And I think when we look about financial inclusion now, it's both, the right products, the ability of an individual to use those kinds of services plus an enabling environment that enables a livelihood.
This is not necessarily a question of formal, traditional education or about being banked or unbanked. The lack of information was more pronounced among those that already had a formal bank account and among business bank users. Among those already banked in the survey, all young business users say they don’t know enough about financial services and products to use them for their business (see Graph 8: What are young people’s perceived barriers to access?). Though a lack of understanding and trust can in part explain why many young people say they do not want the financial products and services on offer, Stakeholder interviews highlighted how crucial it is, for example, to accompany digital access with digital skills:
Not only providing them access to digital financial services, but the knowledge, skills, and confidence that they need to take advantage of those services is important. That’s why we focus on digital financial capability-building alongside DFS [Digital Financial Services].
Digital skills accompanying financial literacy are super important, especially as mobile money is so [important in low-income countries].
The young survey respondents did not lack formal education, with 68% reporting they felt well informed and financially confident. They do, however, lack formal information on the products, services, and risks in choosing and using these. The majority (58%) of respondents had someone who explained the financial products and services available to them.
To take control of their finances, young people need to know how to make products and services work for them, which is the key question we are also working to understand. By giving young people the opportunity to inform the design of products, to give feedback as consumers, and to learn as informed clients, we may get closer to finding the answers.
Often, advice comes from friends and family instead of formal financial institutions. In interviews, many of our stakeholders highlight financial literacy is vital for young people to be able to have the financial confidence to be independent.
Financial literacy gives young people the confidence to take control of their finances.
Young people, as consumers, need information about products and services from formal sources. Information from formal providers is needed on the cost-benefit of these services and how to manage risk when accessing them. Our stakeholder interview with the ILO explained the importance of human decision-making and accountability and highlighted this is particularly vital when products and services are digitally offered.
If you don't have informed consumers, that's where you quickly get into this slippery slope of consumer protection problems.
Financial education must provide more than just knowledge—it must also bring the practical application of that knowledge. It is well recognised that “traditional education, such as high school courses and seminars” are not the most effective way to cater to young people’s needs for understanding and skills.59 Our stakeholder interviews echoed these findings, and our interview with CGAP explains:
The evidence on the impact of different financial education initiatives is very mixed. ... Where I've seen those that have worked is really when integrated in financial service delivery at so-called teachable moments.
Alternative education tools—including digital learning tools, downloadable apps, and workshops—can provide more useful financial education,60 reflected the experiences of stakeholders. The stakeholder interview with Standard Chartered Bank noted that they are finding that in digitally equipped markets, digital offerings can meet the emerging needs of young people. They also highlighted that accompanying digital learning tools can include “an interactive game you can play” that can be effective in digitally enabled markets. Banks can also learn from young people—about what products can work for them and how, what information they need as informed consumers, and what the drivers are for young people. A two-way conversation can help unlock some of these opportunities for both banks and young people.
Financial education also needs to be delivered “just in time.”61 That is, at the right time and in the right format to be useful in a young person’s stage of transition to adulthood. Making Cents highlights the importance of catering to young people’s stages in life. The type of education and information young people need differs depending on their age:
What financial inclusion would mean for a young person … access to a range of financial services appropriate to their age or to their transition stage, and that evolves over time.” … “And in combination with the access to financial services, there is education, mentoring, and coaching that helps them to utilise those services.
When asked about what financial information would help them manage their finances, many young people in our survey wanted more information on savings. Others commented in the open questions that they wanted to learn about investing and how to manage their money. They wanted to learn about shares; financial management; get advice on work, on building, and using a budget; signposting towards financial management innovations; more frequent education on financial products; tax; expense analysis; selecting and downloading mobile apps, such as for expense management; home savings; and online banking. Others commented that they have so little money, they have little need for financial management and would prefer support in boosting their incomes in the first instance.
[I need advice on] how to make money work for us and how to spend money wisely without ending up in debts.
Young people were also interested in financial information on diversifying income, access to capital, the stock market, record keeping, customer care, grants, identifying profitable work, and business management. Some were interested in cryptocurrencies generally, blockchain systems, and the dangers of crypto. Many young people, when asked, had very specific ideas of how products and services could work better for them and what information they needed. For example, one young person commented:
[I need] centralised automated statistics and information on my income and expenditure. Currently, every bank, e-wallet and others have their own separated data of its client.
There are a number of effective programs that work to provide skills and safe learning environments. BRAC Empowerment and Livelihoods for Adolescents (ELA) began working with young women in Bangladesh and has expanded to Tanzania, Uganda, South Sudan, and Afghanistan. One of the key features of their education outreach is girls´ clubs which provide a safe place for girls to socialise while also providing life-skills training, livelihood training, financial literacy, savings and credit facilities, and community sensitisation. Many are linked to agriculture because they are in rural areas.62
In a 2021 systematic review of the literature on financial literacy, financial education impacts financial behaviour.63 The impact of financial education is notable for how young people behave with their finances64 and make financial plans.65 Financial education also deals with demand-side issues that in turn influence how young people behave with their money.
There are training programmes that cater to these needs of young people. The ILO SFP Financial Education Intervention Model training provides essential skills on “earning, spending, budgeting, borrowing, saving, and using other financial services such as insurance and money transfers.” It helps empower women and enables young people to get better results from their business.66
A lack of a relationship with financial service providers hampers literacy from being translated into young people’s behaviour—a total of 45% of young people in our survey never even considered accessing personal financial products and services. Already banked business users (see Graph 8: What are young people’s perceived barriers to access?) were most likely to self-select out of financial products. Three-quarters (75%) of young business bank users say they assumed they would not be eligible for products and services on offer, while more than a quarter (26%) of all young people assumed they would not be eligible.
In low-trust settings, it is particularly difficult for young people to give someone their money to take care of. Low trust is something young people learn from experience—in many cases, they learn to not trust authority. Particularly in countries that have higher levels of perceived corruption, young people grow up seeing abuse of authority, which lowers their trust in the accountability and transparency of formal institutions. We found that only 9% of young people turn to a bank when they need financial and non-financial support. This is just above the 8% that would turn to an informal money lender first (see Graph 9: Who do young people turn to when they don’t have enough money or need advice?). Across all stakeholders, trust and relationship-building are vital components to their experience in finding solutions, as one stakeholder from Primark summarises:
Our Primark stakeholder interview summarises the financial support needs of workers in their supply chains;
…like this feeling of trust and they’re really afraid of losing their money.
The first big issue is trust … the people we're trying to serve, low-income people, they don't have the ability or the know-how or the wherewithal to chase their monies if there is a problem that needs redress.
Financial education can provide basic skills that increase confidence and employability along with literacy, according to the ILO.66 Financial literacy is more than just education; it encompasses information, understanding, and skills. With many young people in our survey turning to family and friends over the formal system for advice and support, there is a clear gap for financial service providers to fill as information providers and sources of advice.
As seen in many of the success stories above, a two-way relationship needs to be built between providers and young people. A relationship needs to be established in which providers and young people can build mutual trust, develop innovative and appropriate products and services, and expand access to young people at scale and in ways that help them to learn, earn, and grow.
For young people, education has moved beyond classroom-based courses, particularly since the Covid-19 digital shift in focus to home-based options for learning. New tools, styles, and approaches are beginning to give young people the skills they need to access financial inclusion, as well as the understanding to make the products and services work for them. Our stakeholders highlight the importance of aligning training with offerings, such as providing digital education along with digital products and services, which can help meet the needs of young people.
