Givemore Manyenga

Communications Associate

The Youth Café

 Context

More than 1.8 billion adults still lack access to banking services or receive subpar financial products and services, which prevents them from taking advantage of economic opportunities, leaves them vulnerable to shocks, and puts them at risk of permanent debt or even modern slavery. Innovation is required to allow excluded populations to safely transfer and save money, borrow money, and manage risks with insurance, both for themselves and for their micro, small, and medium-sized enterprises (MSMEs). This is true even though the number of people with formal accounts has increased, with mobile phones serving as a key enabler.

Lack of access to the internet and financial service providers, unclear product descriptions, a lack of official identification, and discrimination, particularly against women, members of racial and ethnic minorities, people of colour, those who are disabled, members of displaced communities, and low-income groups, are some of the causes of financial exclusion. It will take specialised solutions that guarantee equal access to affordable financial services to ensure that everyone has access to the resources they need to take risks, make plans for the future, and survive turmoil. Technology and innovation can aid in increasing access to necessary services as well as in the development of products that cater to the financial needs of the unbanked and underbanked, such as loans with digital collateral as security or micro insurance with weather indexing.

The obstacles standing in young people’s ways to financial inclusion are innumerable. Often, they experience levels of difficulty or uncertainty as they make the transition to adulthood, regardless of their socioeconomic, demographic, or geographic circumstances.

With 87 percent of the world's youth living in developing nations, their circumstances are among the most challenging - the situation is especially dire for young girls and women. High unemployment rates have a disproportionately negative impact on youth. For instance, a generation of young people in sub-Saharan Africa have already lost parents to the AIDS epidemic, and by 2020, it was predicted that 15 to 25 percent of children in a dozen Sub-Saharan African nations would have lost parents to the disease.

Resultantly, this generation have a very difficult time making the transition from childhood to adulthood as they likely become household heads much younger than other, less vulnerable youth. According to a UN report, the population of youth will reach its peak in the following 20 years. This unprecedented demographic growth might be viewed as a chance, but given the baseline of youth unemployment and poverty, it could pose a serious threat to their future if their needs are not met. The inability to develop employable skills or the capacity for lifelong learning may condemn them to enduring, escalating poverty. However, growing in popularity are new strategies that help economically disadvantaged youth proactively realise their full potential.

Youth who want to escape poverty and make their own economic decisions need access to financial and social resources. Giving young people access to financial services, such as a secure place to save their money or a loan with the right terms for education or business investment, can encourage entrepreneurship and asset building while emphasising sustainable livelihoods. When the financial component is combined with mentorship opportunities, training in entrepreneurship and financial literacy, and other factors, it is especially effective for young people.

Despite these advantages, it's thought that less than 5% of young people have a savings account because they have a lot of difficulty accessing financial services. The youth market is poorly understood and underserved by financial service providers (FSPs) like banks, credit unions, and microfinance institutions, and regulatory frameworks need to be put in place to facilitate financial inclusion for young people.

What Should Be Done

Young people still encounter numerous obstacles when trying to access financial services, such as limitations imposed by the legal and regulatory systems, inappropriate and inaccessible goods and services, and limited financial resources. A multi-stakeholder approach involving governments (including policymakers, regulators, and line ministries), FSPs, youth serving organisations, and other youth stakeholders is necessary to overcome these barriers and achieve successful youth financial inclusion. Of course, the focus of this conversation needs to be on youth. The following suggestions are meant to help policymakers, regulators, and other important stakeholders get past obstacles.

Legal and regulatory environment.                                                                               

First off, legislators should create laws that adhere to the United Nations’ Smart Campaign's and Child and Youth Finance International's Child Friendly Banking Principles - give youth the most control possible within the bounds of the law, minimise age and identity restrictions. A collaborative effort between various policy and line ministries, including the Ministry of Finance, the Central Bank, the Ministry of Youth, and the Ministry of Education, should produce these policies, which are both youth-friendly and protective of youth rights. These well-organised efforts need support from bi-lateral and multilateral organisations, however.

Inappropriate and inaccessible products and services

To increase youth access to financial services at low cost, policymakers should create legislation that supports the development of creative, practical, and cost-effective delivery channels. The law should make it possible for FSPs to bank via agents, mobile devices and schools. Bilateral and multilateral organisations ought to fund these innovations and support pertinent legislative or regulatory initiatives. Policymakers should make it clear that building the capacity of FSPs that want to enter the youth financial service market should be a priority area for donors in order to assist FSPs in designing and delivering appropriate financial services. For instance, learning how to conduct market research to determine the socioeconomic traits, needs, and preferences of youth is a crucial component of capacity building.

Financial capabilities

According to the UN’s definition of financial capability, it is "the combination of knowledge, skills, attitudes, and especially behaviours that people need to make sound personal finance decisions, suitable to their social and financial circumstances." Policymakers should therefore create national financial-literacy strategies for youth and entrepreneurship programs that boost youth financial capabilities in order to address the issue of low financial capabilities among youth and give young people the confidence to make wise financial decisions, manage financial services effectively, and develop and work toward a concrete savings goal.

Most importantly however, governments and donors ought to aid in the creation and application of such plans, regardless of whether they are based in communities, schools, or any other setting.

This multi-stakeholder strategy to remove these three obstacles may draw more attention to the opportunities for youth financial inclusion.

Main Takeaway

Financial inclusion refers to the availability to both individuals and businesses of useful and cost-effective financial goods and services, including payments, transactions, savings, credit, and insurance, that are provided in a sustainable and responsible manner.

According to the World Bank Group, financial inclusion is a crucial tool for reducing extreme poverty and fostering shared prosperity as well as being an enabler for seven of the 17 Sustainable Development Goals.

Therefore, because young people frequently lack access to official financial services due to legal constraints, high transaction costs, and unfavourable stereotypes about youth there is need to put in place youth-friendly and youth-protective regulatory frameworks and inclusive policies, that curtail youth financial exclusion.