Young people want financial service providers to help manage their money and to keep it safe, but the products and services are often not fit for purpose.
In many lower-income communities, young people tend to survive by engaging in a portfolio of activities10—hence, many young people in our survey are simultaneously in work, in education, and seeking new work. Some are in the formal economy, many in the informal, some paid and others unpaid. Nevertheless, this survey and previous research has found that young people hold high aspirations for their future, aspirations which often aim for their own financial success and to support others in their families and communities.11 In this context of multiple activities and high ambition, what could carefully-designed financial products and services offer to young people?
Carefully-designed products and services could offer young people financial independence and protection, but many products and services remain out of reach because they are not fit for purpose. Just over half of all young people in our survey already have a bank account, 44% had mobile money, and 43% used electronic payments. Some young people tell us in the comments that they like banks because they are “credible”, “trustworthy” and “safe”, and help them be “less wasteful” with their money.
Yet, of the young people we asked, 62% said banks are located too far away and 45% said that they cost too much. Graph 1 shows the barriers to access as young people in our survey see them. Both the real and perceived cost of formal finance is a commonly known barrier to access. Almost all business users see what is on offer as out of their wealth range; 93% of business users say that they do not have enough money to access financial products and services (see Graph 8). At the same time, 82% say the financial products and services they have cost too much to use.
The lack of appropriate products and services for young people is a general sentiment echoed in the stakeholder interviews. Interviewees cited a range of issues on the importance of savings, information and protection, and the ability of consumers to use the products and services they already have, as well as the pitfalls of digitalisation. Young people are asking for savings and insurance but are often marketed credit. There are many opportunities for digital banking, but young people need to know the regulations that can protect them when using online banking and where to turn to when something goes wrong.
Over half of the young people we asked had online banking. Yet 56% of all business business bank account users (see Graph 8) and 20% of personal users feel they do not have a good enough internet connection for it to be useful. Mobile money, such as Mpesa, was used by 44% of young people. It is clear that mobile inclusion is an important factor in advancing financial inclusion. Though with 234 million fewer women than men using mobile internet, according to the 2022 GSMA report, the digital gender gap remains a key barrier.12 Our stakeholder interview with GSMA summarises:
Closing the gender gap across low-and middle-income countries is a key barrier. We've made really great strides in some countries for example, Kenya, where the mobile money account gender gap is 7% and showing progress towards narrowing and closing. We still have countries that are near or well above 50%. For instance, in Pakistan, the gender gap in mobile money account ownership is 71%.
Savings, investment, and insurance products help young people on the path to achieving their goals. Savings products, by creating formal records, are key to creating a financial history for young people and key to their financial health.14 Nextbillion also finds the power of digital savings helps keep a track record, build good savings habits, and gives people the resilience to be able to repay their loans.15 Graph 2 shows the products and services young people in our survey say they would like to have.
Our survey responses suggest many young people want to save and invest to help create stable family environments. Young people prefer savings (16% want a community savings scheme) and insurance (25% want it for their personal use) over credits and loans. Only 10% say they would like to have credit or loans from a bank for their personal use. One third (33%) say they do not want a loan or credit from a bank, and 29% say they would not want a credit card. In answer to the question 'how can financial services help you manage your money?', one woman explained:
[Financial services could help me] by opening a separate savings account and setting up a standing order to transfer a monthly portion of my income into savings. [This would give me] the ability to obtain an educational loan.
Where people don’t have collateral or credit history, creating some form of a financial history can put young people on the path to accessing finance.16 The Consultative Group to Assist the Poor (CGAP) working paper and the Alliance for Financial Inclusion AFI Survey 2021 also see savings as a key component to financial inclusion in this way.17 Creating a financial history is especially crucial for access to finance for young women in low-income countries, where 1 in 2 women do not have an ID, according to the World Bank.18 Savings groups—or community savings—provide a more informal (often with less paperwork needed) way to start creating a financial identity, opening a relationship in which trust can be built with the formal financial system. Many stakeholder interviews point to how important it is to build trust—for example, informal savings groups can provide a forum in which to create trust:
The social cohesion that comes from informal savings groups is important and definitely something that could be built upon. Trust among savings group members, as well as between savings groups and formal financial institutions, can be difficult to foster, but it really is critical.
The lack of quality products remains a key supply constraint. The AFI Survey 2021 and a GCAP paper both find “low-value” products and services hamper financial inclusion of young people.19 Our stakeholder interviews reinforced that products and services were often not fit for purpose, and survey responses pointed to access issues, cost, and lack of appropriate targeting.
With credit offered by many providers at high rates, young people do not want to be in debt. There are risks, which act as barriers to young people, including the risk of being in debt at high interest rates and the possibility of bankruptcy. Previous research and policy guidelines suggest providers start by identifying market segments that they can adapt solutions to,20 so this is what we did. The numbers in our survey suggested we look more closely at two market segments—young people who use bank accounts for their business and young women entrepreneurs—to find tailored solutions to their needs. The following sections explore these findings.
