Youth savings accounts, also known as child savings accounts have been gaining popularity as industry professionals begin to realize the benefits of offering financial services to youngsters. Youngsters across the world regularly save money, which encourages financial discipline; however, there is a safety risk associated with storing money at home.
Benefits of Youth Savings
When microfinance and commercial banks offer youth saving accounts, these youngsters:
- Enter the formal financial economy,
- Are eligible to earn interest on their savings,
- Enjoy the safety of bank accounts, and,
- Build certain capabilities associated with using financial services.
It goes without saying that once these youngsters are old enough to access microloans and other forms of credit, the screening and approval processes used by microfinance institutions will be less bureaucratic.
Challenges in Youth Savings
Despite the importance of such schemes, youth savings face two major hurdles as of today:
- High costs: the low transaction size of microsavings pushes up the administration cost of offering youth savings accounts. Development aid can help deal with the low margins, but reliance on external funding is detrimental for the sustainability of this service. One possible solution is to use an alternative medium of service delivery, such as mobile banking, to reduce administration costs.
- Legal barriers: most countries require bank account holders to present a legal identification card (available around the age of 18), as well as other supporting documents, in order to prevent fraudulent activities. As a result, adult supervision is mandatory in all countries, except in the Philippines where children can open their bank accounts at the age of 7. A recent blog post at the CGAP Blog discusses this issue.
