By: Kathryn Larcombe and Lindsey Allwright, FSDMoç Consultants
The youth labour force is estimated to be growing by almost 40% per annum however the formal job market only employs 700,000 people. The majority of young people therefore work in the informal sector, and have an estimated underemployment rate of 80%.
What role can the finance sector play?
In the ILO’s A Call for Action in regard to the Youth Employment Crisis, access to finance for youth entrepreneurs is highlighted as a key action.
For young people that create their own employment through starting their own income-generating activities, financial services such as enterprise finance, insurance, leasing and payment services are required in order to start, sustain and grow their business.
Research by YouthSave and the MasterCard Foundation across their projects in several countries has found that young people do demand financial products and services, and that they engage in positive financial behaviours such as making financial transactions, saving money, using credit, and that they are willing to pay (transaction fees) and eager to learn. YouthSave found that when offered the opportunity, many youths do open savings accounts. Key product characteristics that are important to youths are easy access to banking, simple to understand and use products, privacy and independence in operating their own bank accounts. YouthSave has found that young people in particular are future looking, and demand savings products that allow investments in education, equipment for a business or to help their families particularly during emergencies.
In Mozambique youth financial access is low but has been increasing, in line with the adult population. FinScope survey data shows that in 2014 35% of 26 to 35 year olds were financially included (compared to 25% in 2009, a growth of 9%) while 27% of 16 to 24 year olds have access (compared to 21% in 2009). For both age cohorts, the increase has been primarily driven by an increase in banked youths especially in the 26 to 35 year cohort and that a higher proportion of youths than adults use formal compared to informal financial services. This demand in banked financial services has come mainly from urban males with rural youths and female youths relying more heavily on informal financial services.
What barriers do young people face in accessing finance?
The youth population face a unique set of barriers in accessing financial services. In Mozambique, youth face constraints from the policy and regulation environment which sets the legal age for opening a bank account at 21 years old. Underage youths therefore need an adult co-signer which can limit their ability to conduct their own transactions and leave them vulnerable to exploitation by adults. Strict Know Your Client (KYC) requirements, which is a proof of identity and address, are a noted barrier to financial inclusion in Mozambique. Similar to the adult population, for 16 to 25 year olds only 45% have an ID card, 2% an electricity bill and 1% a water bill, while for 26 to 35 year olds 52% have an ID card, 4% an electricity bill and 3% a water bill.
How can financial institutions better capture the youth segment?
The youth segment must be viewed in the long term
Capturing young clients and then transitioning them automatically to accounts aimed at older youths or adults as they age helps to instil positive financial behaviours in people from a young age creating the opportunity to build a longer-term and loyal clientele who are comfortable in the formal financial services environment. YouthSave found that younger youth save significantly more than older youth as younger people withdraw less highlighting the importance of capturing savings at an early age
The youth segment needs to be viewed as its own market with its own network
Young people may respond more to different types of incentives than adults. They respond better to marketing and financial behaviour nudges through digital channels which can encourage deposits and transactions.
Financial service providers can also take advantage of tapping into young peoples’ networks to expand their revenue streams by cross-selling products to other siblings, parents, extended family and friends. Each youth client can be thought of as having a current and future network because as their youth client ages, financial institutions will gain the opportunity to capture the client’s own family when they get married and have children. In terms of reaching out to youths’ networks, YouthSave found that when banks engage parents, youths save significantly more.
Youth can be better captured through digital channels
FinScope data shows that a mobile or smartphone is the asset that the greatest number of Mozambican youths own (49% of 16 to 25 year olds and 53% of 16 to 35 year olds).
Providing non-financial services are important
A YouthInvest programme in Morocco found that 96% of participants started to save and more than half of those increased their savings during the time they received training on life skills and financial education.
 UNCDF. (October 2015). YouthStart Global: Inception phase – Youth economic opportunity ecosystem analysis. New York: UNCDF.
 The youth unemployment rate is 14%. Source: UNCDF. (October 2015). YouthStart Global: Inception phase – Youth economic opportunity ecosystem analysis. New York: UNCDF.
 Dueck-Mbeba, R., & DasGupta, N. (n.d.). Financial Services for Young People: Prospects and Challenges. The MasterCard Foundation, The Boston Consulting Group.
 All data in the next two paragraph is from FinScope Consumer Survey 2014 in FSDMoç. (n.d.). Analysis of Youth Financial Inclusion. Maputo: FSDMoç.
 YouthSave Consortium. (October 2015). YouthSave 2010-2015 Findings from a global financial inclusion partnership.
 Harley, J., Sadoq, A., Saoudi, K., Katerberg, L., & Denomy, J. (December 2010). YouthInvest: A case study of savings behaviour as an indicator of change through experiential learning. Enterprise Development and Microfinance vol.21 No.4.