THE economic case for driving financial inclusion and financial literacy among citizens and the youth is receiving wide attention from stakeholders: governments, financial institutions, and non-governmental development partners to name but a few. Clive Mphambela
This subject has, however, ceased to be tackled only by academics and development economists, but it has captured the active imaginations of many forward-looking private sector financial service providers, particularly banks.
Recent demographic estimates put youth under the age of 25 as representing almost half of the world’s population today.
In the next 15 to 25 years, Africa, for example, will start reaping what is known as the demographic dividend, when most young people become middle class citizens.
However, the pace of job creation must accelerate to keep up with the number of people that are joining the employment market and to maintain high levels of economic growth that have been enjoyed so far.
For financial institutions, especially banks, these youths are undoubtedly the clients of tomorrow.
However, many financial institutions in the past have stayed away from viewing youth as potential customers because it is quite difficult to serve them in a profitable manner.
Marketing, to these young individuals, is generally expensive because young customers typically operate with very small monetary amounts, and parents are their most significant sources of income.
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It, therefore, makes sense that instead, financial institutions have tended to focus their attention on the parents, who are presumably more liquid.
However, studies by world leading authorities on financial inclusion, CGAP economists Tanaya Kilara and Barbara Magnoni resulted in them speaking to a dozen financial service providers (FSPs) worldwide who are leading an effort to offer financial services — savings in particular — to young people.
While at first many expected to hear the financial services firms mention corporate social responsibility or other social elements as the key motivating factors for targeting young consumers, it turned out that instead they were given a variety of motivations, mainly related to business case factors.
Of course, the aim of any business is to earn fair revenues at fair or low costs and naturally reducing costs was a common goal amongst the players surveyed.
In Zimbabwe, banks are taking a similar business view to addressing financial exclusion; to grow the size of the market, in future.
This thinking cannot be faulted and naturally each bank will be approaching these important goals in different ways, serving different youth segments with different strategies and visions but all striving to narrow the gap between the banked and the unbanked.
Financial literacy and the correct order of things The young are impressionable, and it is the responsibility to teach our young people the virtues of good money management at an early age.
Bad savers generally make bad borrowers, the discipline of saving and delaying consumption and gratification from money is a quality that an economy needs in most of its citizens.
So financial literacy initiatives targeted at the young people should generally focus first on the importance of savings.
Therefore, children must first be given general numeracy and to understand the theoretical and practical aspects of money management.
Then at the practical level, financial service providers should look to offer savings products to young clients (while still making a modest profit or breaking even), but the bigger motive being to develop these youngsters into responsible future consumers of financial services.
As they get older, the young people can then be introduced to responsible borrowing practices, with the right behaviours, particularly with respect to repayment of loans and the respect of financial contracts being key goals of financial literacy. They sould also be schooled in entrepreneurship and livelihood skills that will enhance their income earning potential and capabilities.
If we take this route , where we place financial literacy and financial capability first, we would not have the recently announced high default rates on the loan facilities targeted at youths.
We must school them first in the discipline of personal money management, entrepreneurship and so on before they are exposed to debt. Financial Literacy and Capability first, before all else.
Who are the stakeholders and who are the winners?
Ultimately, the country is the winner. The most successful countries have a generally financially astute population or a large segment of financially astute people.
These may be in government, or they may be engineers, doctors, or businesspeople. The sum total of this population is a financially successful population.
The more financially responsible citizens we have, the more entrepreneurs we have , the more employable financially literate consumers we have the more successful economy we will have with people that earn an honest living and pay their dues and obligations including taxes.
Parents also stand to benefit, promoting financial literacy amongst children, especially the girl child was found in studies in Brazil and Ghana to be significantly correlated to better academic performance by the children involved in the studies.
Children who are exposed to financial literacy programmes start thinking more clearly about their futures and start planning their lives earlier and have clearer life goals than less financially literate children.
So teaching children to save may seem like an imprudent, socially nice endeavour, but the growing body of evidence and common sense suggests that there is a business case for promoting a savings culture amongst the youth.
This business case is dynamic and will evolve as more banks and financial players enter to operate in the competitive financial space.
Those with long term visions will naturally look at the young people of today, as tomorrow’s customers and, of course, they will be right.
Clive Mphambela is a Banker. He writes in his capacity as Advocacy Officer for the Bankers Association of Zimbabwe. BAZ expressly invites stakeholders to give their valuable comments and feedback related to this article to him on [email protected] or on numbers 04-744686, 0772206913
