Financial Inclusion for Children and Youth CYFI Landscape Series – Summary for Policymakers
Child & Youth Finance International (CYFI) CYFI is a global system change organization working with partners in 132 countries. We have taken on the challenge of ensuring that everyone works together to reshape financial systems in order to economically and socially empower children and youth worldwide. CYFI has committed to three different roles: advocate, network connector & expert hub and network advisor.
1. Introduction The topic of financial inclusion has seen significant progress in the past five years. Continuous advocacy by civil society and intergovernmental organizations such as the United Nations and the World Bank has placed the topic firmly on the international development agenda. Financial inclusion data is increasingly available through sources such as the World Bank Global Findex. Child and Youth Finance International (CYFI) has worked to raise widespread awareness of the importance of including children and youth in national financial inclusion strategies, adding financial, social, and livelihoods educations to school curricula, and expanding the availability of Child and Youth Friendly banking products around the world. A number of interventions have provided essential information about methods of effectively approaching financial inclusion for children and youth. Research has shown that children learn more effectively when they can apply their financial learning through access to safe and appropriate financial services and are further empowered when financial education focuses on more than just the management of money.
2. Changes to the Landscape over the Past Five Years Drawing from the definition of the Center for Financial Inclusion, financial inclusion can be considered as ‘access to appropriate, quality, and affordable financial products and services’.1 A distinction must be made between formal and non-formal financial services. Formal financial services are linked to a financial institution and regulated by the central bank while non-formal financial services, like village savings groups, are not. Worldwide, millions of people do not have formal access and therefore cannot save, accumulate wealth, or access credit in a safe and regulated manner. Many of these individuals are children and youth. A child is an individual under the age of 18, or under the age of majority as prescribed by national law. Youth are persons between the ages of 15 and 24, as defined by the United Nations.2 It is important to note that this definition is highly contested and differs per region. The concept of economic citizenship builds on the achievements over the past years in the realm of financial inclusion and education. It complements financial inclusion with a focus on financial, social and livelihoods education, creating a more holistic approach to the economic empowerment of children and youth. Economic citizenship can improve economic and social well-being, reduce income and asset poverty, and lead to sustainable livelihoods for children and youth. The model of economic citizenship 1
Center for Financial Inclusion website UNESCO website 3 CYFI follows the UN definition of “youth” as those persons between the ages of 15 and 24 years, without prejudice to other definitions by Member 2
consists of four components: financial inclusion, financial education, social education and livelihoods education. These are the building blocks of empowerment and financial capability that underpin economic citizenship for children and youth.3
Figure 1. CYFI Model of Economic Citizenship
Financial education includes instruction and/or materials designed to increase financial knowledge and skills. Social education is the provision of knowledge and skills that improve individuals’ understanding and awareness of their rights and the rights of others. It also involves fostering of life skills such as problem solving, critical thinking, and interpersonal skills. Livelihoods education builds one’s ability to secure a sustainable livelihood through skills assessment and a balance between developing entrepreneurial and employability skills. Empowerment is the sense of confidence and efficacy experienced by children and youth through controlling their own lives, understanding and claiming their rights, and having empathy toward others. Financial capability combines a person’s ability to act with the opportunity to act. To be financially capable, and fully enhance their own social and economic well-being, people must have financial knowledge and skills as well as access to appropriate financial services.
Frameworks and Principles Supporting Financial Inclusion for Children and Youth A number of frameworks and principles guide financial inclusion initiatives by institutionalizing leading practices. Some of these apply specifically to children and youth. The CYFI Secretariat has worked closely with, and consulted a wide range of, stakeholders from the public and private financial sectors as well as the social and academic sectors to develop the Child and Youth Friendly Banking Principles. The principles are based on the UN Convention on the Rights of the Child and facilitate an international benchmark States. Children are defined as those under the age of 18 and “young person” as those between the ages of 10-24.
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for safe and reliable banking products for children and youth. 4 The Children’s Rights and Business Principles (CRBP) set out ten actions that business can take to respect and support children’s rights. The CRBP was developed in a process led by UNICEF, UN Global Compact, and Save the Children. They build on the UN Guiding Principles on Business and Human Rights, UN Global Compact Principles, relevant International Labor Organization (ILO) Conventions and the Rights of the Child. 5 The United National Capital Development Fund (UNCDF), under the YouthStart Program, adapted the Smart Campaign Client Protection Principles and indicators to reflect the particular needs of young clients, in line with the Child and Youth Friendly Banking Principles. Making Cents International (MCI) developed the emerging guidelines for design and implementation of youthinclusive financial services. These guidelines have been used by a number of financial institutions in developing products for children and youth. In order to offer youth quality services on a substantial scale and sustainable basis, financial service providers should: involve youth in market research and product development, develop products and services that reflect the diversity of youth, ensure that youth have safe and supportive spaces, provide or link youth to complementary non-financial services, focus on core competencies through partnerships, involve the community, and establish institutional readiness.6 Financial institutions seem to be reluctant in offering financial products to children and youth specifically. They believe youth are difficult and, more importantly, expensive to bank. Under the framework of the YouthSave Consortium, the Consultative Group to Assist the Poor responded by developing a business case framework that helps financial institutions understand under which conditions there might be a positive business case for serving children and youth. The framework, based on existing literature, macro-level data correlations, and interviews with financial service providers, looks at the various factors influencing the profitability of youth savings products. These factors include profitability drivers, market level levers, institutional levers and segment specific levers.7 All of the frameworks provide guidance for the development of youth financial services, focusing on different aspects. Overall, these frameworks have contributed to standardizing youth financial inclusion efforts. However, this has been more on a voluntary basis
Evidence of Financial Inclusion for Children and Youth Several studies have shown the relevance of financial inclusion for children and youth. Youngsters want to save and do so when they get the opportunity. However, for most young people, the chances are still limited that they will actually receive these opportunities to save in a formal institution. According to the World Bank Global Findex, children aged 15 to 24 are between 10 to 50 percent less likely to have an account at a formal institution than adults.8 The YouthSave research, conducted in a coalition consisting of The MasterCard Foundation, Save the Children, Washington University, New America Foundation and CGAP not only shows that children (mostly aged 12-18) want to save in formal savings accounts but also that younger youth (under the age of 13) actually save more often than older youth, which strengthens the belief that it is important to introduce children to this topic at a younger age than is now common. It should be noted, however, that these results were partially due to the fact that younger savers withdraw less. 9 Due to the difference in saving methods between older and younger children, it is important the adapt products to different age groups. Research has shown that financial inclusion is positively correlated with economic growth and employment and researchers by and large believe in an underlying causal effect. The important mechanisms underlying this relationship include increasingly lower transaction costs and a better distribution of capital and risk across an economy.10 Han and Melecky suggest that broader financial inclusion could lead to increased financial stability, because a broader funding base makes banks more resilient. 11 A study by Martinez identified access to finance as an essential tool employed by governments to fight poverty and stimulate growth through the productive allocation of resources and the reduction of capital cost.12 A study done in Nigeria indicated a significant positive relationship between financial inclusion and economic growth. A significant relationship was also identified between financial inclusion and the economic wellbeing of Nigerian citizens.13 The large number of national governments that signed the Maya Declaration and the prominent role of financial inclusion on the G20 agenda make the commitment from policymakers to advancing financial inclusion clear. The Maya Declaration is an initiative of the Alliance for Financial
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The MasterCard Corporation & CYFI (2014) The MasterCard Corporation & CYFI (2014) 6 Making Cents International (2015) 7 CGAP (2014a) 8 World Bank (2015)
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than any other and financial institutions can be hesitant to undergo formal assessments.
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YouthSave Consortium (2015) CGAP (2014b) 11 World Bank (2013) 12 Martinez (2011) 13 Onaolapo (2015)
Inclusion (AFI), a global network of financial policymakers from more than 90 developing countries commited to unlocking “the economic and social potential of the unbanked’.14 On a national level, this has translated into the development of national strategies on financial inclusion and regulatory changes. Developing a national strategy brings together key stakeholders and allows for a holistic view of financial inclusion, often also including financial education or building financial capabilities. While many countries have a national strategy for financial inclusion, only a few explicitly mention children and youth as a separate target group with specific needs. Including children and youth in the national strategy ensures that the topic is a priority on the national policy agenda. Children and youth are historically underrepresented, and it is therefore even more important that their interests and challenges are reflected in a national platform.
Research Limitations and Opportunities for Further Research New studies have provided useful insights into how children and youth save, which approaches work well, and the financial product characteristics that are most attractive to young people. Financial institutions, national authorities and civil society organizations are working together to introduce new products. The potential of technology to advance financial inclusion becomes clearer, but this is still beset by challenges. With financial inclusion taking a more prominent role in the development agenda, it is imperative that research continue to be undertaken. Existing studies are meaningful, but have their limitations, and there are still areas where further research is required to refine the approach to financial inclusion for children and youth. Two main topics that require more in-depth knowledge include 1) the long term impact of financial inclusion on children and youth, and 2) the interaction between financial inclusion and the holistic package of financial, social, and livelihoods education.
Opportunities and Challenges for Increasing Financial Inclusion Looking forward, several opportunities and challenges to increase financial inclusion for children and youth have emerged. A growing number of people are getting access to formal financial services, but the majority of them are still adults living in urban areas. Additional effort is required to also include more specific sub-groups such as children and youth in general, girls, orphans, and vulnerable children and young people living in remote, rural areas. Digital financial and the use of agents can help bring down the costs of including these vulnerable groups, as well as linking nonformal savings groups to formal financial institutions. Though many countries have made progress in both the 14 15
Alliance for Financial Inclusion (2015) World Bank (2015)
areas of financial inclusion and financial education, the areas remain fairly separate. However, to achieve a state in which children and youth are fully capable and empowered to function as economic citizens, it is important to facilitate greater integration of financial and educational services. Without complementary financial, social, and livelihoods education, whether provided by schools or banks, and the appropriate consumer protection framework, financial inclusion can lead to account dormancy and exploitation. Regulatory restrictions, such as age barriers and identification requirements needed to open a bank account, still remain a challenge. The social business case for financial inclusion of children and youth is fairly straightforward, although the long term benefits should be studied further. Give the elusive nature of the financial business case for financial service providers, the push to extend the number of Child and Youth Friendly banking products will continue to be a challenge. Resistance from the banking sector towards additional regulation, or Child and Youth Friendly certification, certainly does not make this effort any easier.
3. Current Financial Inclusion Landscape Statistics on Financial Inclusion The Global Findex database was launched by the World Bank in 2011 and provides comparable indicators showing how people around the world save, borrow, and make payments. Account ownership is an important indicator and is defined as ‘having an account either at a financial institution or through a mobile money provider.’ 15 This includes banks, credit unions, microfinance institutions, and mobile phone-based services for payments and sending and receiving money. In 2015 CYFI collected data from thirty financial institutions on the availability of products for children and youth and the key characteristics. The results show that 83 percent of respondents offered banking products for youth under 18, compared to 70 percent in 2011. From these, 86 percent of financial institutions complement the account with an educational component.16 The majority of financial institutions offer financial products to the older age segments, but the results indicate that the younger age segments are also seen as a valuable segment to target.
Key Players Any initiative to increase financial inclusion for children and youth requires funds to execute. A key funder in this area has been The MasterCard Foundation, showing commitment to children and youth as a particular target group, has funded a number of financial inclusion and economic empowerment initiatives, including YouthSave and YouthStart. The Bill and Melinda Gates Foundation, 16
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through its Financial Services for the Poor program, support the development of innovative savings products worldwide. 17 The Nike Foundation focuses specifically on promoting the economic empowerment of girls through financial education, business training, and access to savings and loans.18 A number of organizations are dedicated to coordinating advocacy and implementation efforts for financial inclusion for children and youth. Of these, CYFI focuses particularly on children and youth, taking on the role of networker, advisor, innovator, and thought leader to support national governments, central banks, financial institutions, and civil society in promoting economic citizenship for young people around the world. Making Cents International is a US based organization that focuses on furthering economic opportunities for children and youth, as well as other vulnerable groups like women and smallholder farmers. The Alliance for Financial Inclusion (AFI) and the Global Partnership for Financial Inclusions (GPFI) bring together nation states, and other governmental entities like central banks to coordinate policy and regulatory changes that can enable financial inclusion. Additionally, Financial Inclusion 2020 connects private and public initiatives towards the common goal of achieving full financial inclusion by 2020. It is supported by private sector organizations like MasterCard, Citi Bank and private foundations like the Bill & Melinda Gates Foundation. A great number of organizations have invested in research on financial inclusion in recent years. Of these, CYFI, The MasterCard Foundation, Barclays, Making Cents International, CARE, Plan International, New America, The Center for Financial Inclusion at Accion, Citi Foundation, MEDA, The SEEP Network, and others have looked at the approach for, and impact of, financial inclusion for children and youth through initiatives such as YouthStart, YouthSave, YouthInvest, Banking on Change, and Banking the Next Generation. Other organizations contribute to the wider body of literature on financial inclusion in general, such as CGAP and UNCDF.
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Key Initiatives During the development and implementation of the national strategy, policymakers should strive to incorporate feedback from children and youth as much as possible. Until today, only a handful of countries have singled out children and youth as a specific target group within their national strategies. Additionally, in most countries, children cannot open or operate a bank account independently until they become of legal age, which is often at the age of 18. Given the flexible living arrangements of many children worldwide, they are at a serious disadvantage when they need an adult, often a parent, present to open and manage their savings. Thus, lowering the minimum age enables a large part of the youth population to become included. In the majority of the examples available, it is the national central bank that is leading the initiative. Of course, to open a bank account one needs to provide identification. However, this often becomes a barrier for children when they do not have the proper identification required by banks. When banks allow for alternative forms of customer identification, they can still take precautions to prevent fraud and theft. When children cannot present a birth certificate or national ID, innovations have been made to allow ID verification through a birth notification, baptism card, school registration certificate, a letter from the municipal or provincial administration, school, church authority, or village chief.
4. Future Outlook: Recommendations for Policymakers
As financial inclusion requires more than a change in policy, the role of parties implementing the change on the ground is crucial. At the center of this is a wide variety of financial institutions often led by national central banks. Making up the traditional financial sector, they are responsible for the task of making their products and services accessible to everyone. Microfinance institutions have a natural tendency towards providing financial services to more vulnerable groups and therefore also play a large role in providing youth financial services. Many NGOs support these financial institutions in projects related to financial inclusion for children and youth, often combining project implementation with impact assessment.
Policymakers, like central banks, ministries of finance and consumer protection agencies, are crucial in the journey towards financial inclusion for children and youth, as they play a key role in bringing together stakeholders, coordinating initiatives, and implementing changes to enable access to safe and appropriate financial products and services. There are various international governing bodies that have acknowledged the importance of financial inclusion of children and youth, including the UN’s Sustainable Development Goals, the Maya Declaration, and the Global Partnership for Financial Inclusion. Colleting reliable data and turning it into information is indispensable for assessing the scope of the issue and tracking progress. Including lower age brackets in the World Bank Global Findex and other data collection efforts would be a helpful step towards tackling the problem at hand. When not in place, policymakers should strive to create a national platform committed to promoting economic citizenship. Through such a platform, policymakers can develop a national strategy on economic citizenship that advances financial inclusion, education, and livelihoods opportunities for children and youth. Where in place, these strategies can be further complemented to include specific
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The Bill and Melinda Gates Foundation website
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implementation options for children and youth. Attention should be paid to the further integration of financial inclusion, financial capabilities, entrepreneurial competencies and the promotion of the concept of economic citizenship.
For more information on financial inclusion for children and youth, please consult the complete CYFI Financial Inclusion Landscape Series Document.19
When financial inclusion strategies do exist, initial analysis indicates that minors are not generally a common target of regulatory policies that allow underserved populations to be financially included in an autonomous manner. Some regulations are stronger than others in allowing access to money transactions and remittances for children and adolescents, which could provide new opportunities for dealing with the financial inclusion of minors. Moreover, in parallel, a specific focus needs to be given to the protection of young people’s rights in financial markets. Governments and central banks should work with financial institutions, NGOs, and schools in broad initiatives that integrate financial and educational services. In addition, youth themselves should be actively engaged in policy discussions, program evaluations and product development related to economic citizenship. Within the financial landscape for youth, it is the youngsters themselves that should help determine the measures needed to strengthen and solidify their role as financially empowered economic citizens. However, the opinions and recommendations of young people to create a better and more accessible financial future can only be materialized when children and youth are actively engaged in policy dialogue and program evaluation over the long term. Global Money Week, and other significant advocacy and convening events, can help to stimulate this active involvement. Additional recommendations for policymakers include: Develop and implement national strategies that combine financial access, and financial, social, and livelihoods educational elements with a clear focus on the unique needs of children and youth Identify legal and regulatory barriers that are preventing children and youth from accessing financial services and work on removing them Invest significantly in school banking models that use the public school system to bring together Child and Youth Friendly banking products and ECE related programming, in partnership with financial service providers and qualified educators Monitor and evaluate the effectiveness of national financial inclusion and education initiatives, collecting data on key indicators on economic citizenship for children and youth Leverage local, national and international advocacy and convening events to engage key stakeholders, share resources and inspire action. 19
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5. Bibliography Alliance for Financial Inclusion (2015), 'Maya Declaration'. Retrieved from: http://www.afiglobal.org/sites/default/files/publications/maya_declaration_2015.pdf. Center for Financial Inclusion website, http://www.centerforfinancialinclusion.org/about and http://www.centerforfinancialinclusion.org/our-definition-of-financial-inclusion, Accessed on 10 April 2016. CGAP (2014a), 'The Business Case for Youth Savings: A Framework'. Retrieved from: http://www.cgap.org/sites/default/files/Focus-Note-Business-Case-for-Youth-Savings-A-Framework-Jul-2014.pdf. CGAP (2014b), 'Financial Inclusion and Development: Recent Impact Evidence'. Retrieved from: http://www.cgap.org/sites/default/files/FocusNote-Financial-Inclusion-and-Development-April-2014.pdf. CYFI (2016) CYFI Landscape Series: Financial Inclusion for Children and Youth https://issuu.com/childfinanceinternational/docs/cyfi-financial-inclusion-landscape/1?e=7128000/37817487 CYFI (2015), 'Children, Youth & Finance 2015'. Retrieved from: http://www.childfinanceinternational.org/resources/publications/children-youth-finance-2015.pdf. Girl Effect (2014), 'Empowering Girls with Economic Assets'. Retrieved from: https://www.empowerwomen.org/~/media/files/un-women/knowledgegateway/resourcefiles/2014/08/25/11/41/girl_effect_presentation_empowering-girls-with-economic-assets.ashx. Making Cents International (2015), ‘Emerging guidelines for youth-inclusive financial services’ at Caribbean Microfinance Forum 2015. Martinez, M.V. (2011), 'The Political Economy of Increased Financial Access'. Retrieved from: https://repository.library.georgetown.edu/bitstream/handle/10822/553824/martinezMonicaV.pdf?sequence=1&isAllow ed=y. Onaolapo, A.R. (2015), 'Effects of financial inclusion on the economic growth of Nigeria (1982-2012)', International Journal of Business and Management Review, 3(8), 18-25. Retrieved from: http://www.eajournals.org/wpcontent/uploads/Effects-of-Financial-Inclusion-on-the-Economic-Growth-of-Nigeria-1982-2012.pdf The Bill and Melinda Gates Foundation website. Retrieved from: http://www.gatesfoundation.org/What-We-Do/GlobalDevelopment/Financial-Services-for-the-Poor. The MasterCard Corporation & CYFI (2014), 'Banking a New Generation, developing responsible retail banking products for children and youth'. Retrieved from: http://www.childfinanceinternational.org/resources/publications/2014-bankinga-new-generation.pdf. UNESCO website, http://www.unesco.org/new/en/social-and-human-sciences/themes/youth/youth-definition/. Accessed on 12 April 2016. World Bank (2015), 'The Global Findex Database 2014: Measuring Financial Inclusion around the World'. Retrieved from: https://media.worldbank.org/secure/global-findex-2014/Global-Findex-2015-Report.pdf. World Bank (2013), 'Financial Inclusion for Financial Stability, Access to Bank Deposits and the Growth of Deposits in the Global Financial Crisis'. Retrieved from: https://openknowledge.worldbank.org/bitstream/handle/10986/16010/WPS6577.pdf?sequence=1&isAllowed=y. YouthSave Consortium (2015), 'YouthSave 2010-2015: Findings from a Global Financial Inclusion Partnership'. Retrieved from: http://csd.wustl.edu/OurWork/FinIncl/GlobalAssetBuild/YouthSave/Documents/YouthSave%20synthesis%20report.pdf
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