> Posted by Eric Zuehlke, Web and Communications Director, CFI
The Financial Inclusion 2020 campaign at the Center for Financial Inclusion at Accion is building a movement toward full financial inclusion by 2020. Accordingly, this blog series will spotlight financial inclusion efforts around the globe, share insights coming out of the creation of a roadmap to full financial inclusion, and highlight findings from research on the “invisible market.”
The world is undergoing a profound demographic shift with big implications for financial inclusion, according to the new CFI report, Looking Through the Demographic Window: Implications for Financial Inclusion. The report is the first from Financial Inclusion 2020’s Mapping the Invisible Market, sponsored by MasterCard. This research project examines forces that are instrumental in the world achieving full financial inclusion by 2020 including demographic change, economic growth, technology, and more.
Our new Mapping the Invisible Market website features two cool interactive data visualization tools that show the relationship between financial inclusion and demography. Data Explorer is a dashboard that displays the information from over 80 indicators and geographic areas in bar charts, bubble graphs, and maps. Country Profiles allows users to explore any country or region’s financial inclusion and demographic profiles.
So what does the first report have to say? Poorer countries are experiencing lower birthrates and longer life expectancies, leading to larger working-age populations (see figures below). As the share of the population below age 15 and above 65 lessens, a “demographic window” opens for social and economic opportunity since fewer resources are required to care for these “dependent” populations. The window presents a significant opportunity for the developing countries of middle income where most of the world’s population lives. But, benefitting from the demographic window depends on access to quality education and sufficient economic and employment opportunities – and financial inclusion.
It is well understood that more developed countries are already beyond this stage, facing different challenges as their populations age. The working-age population is decreasing, creating more dependency as caring for older people requires more public investment and individual resources through health care. Not only is the working-age population decreasing, but older populations are living longer due to health care advances. In the poorest countries, the window has yet to open, as birthrates are still high and life expectancies low.
So what does this all mean for financial inclusion?
Total Fertility, 1960-2100. Click on the image above to view in Google Data Explorer
In most of the developing world fertility decline means smaller families and in many cases, delayed childbearing. According to the report, with more years before having children and with smaller families to care for, there is more disposable income for young families. This has the potential to raise the demand for financial services as more people can afford them. Savings, purchasing consumer goods, or accessing credit are becoming increasingly important in developing countries as their demographic makeup shifts.
As life expectancies increase, there’s also rising demand for long-term savings by mature adults who care for their aging parents and pensions to prepare for their own retirements.
Old-Age Dependency and Life Expectancy. Click on the image above to view in Google Data Explorer
A broad mix of strategies is needed. As the report says, “microfinance organizations and other providers to low-income people need to continue innovating. New savings products are needed to help the poor invest in education and for longer lives; health and life insurance products would help to manage longevity risks; credit is needed to grow microenterprises; technology can lower costs for payments and remove barriers to the formal financial system. Financial education is important to help people plan and deal with demographic change.”
Demographic changes will create new needs for financial services, and many people have been left out of the financial picture will no longer be able to be ignored. As the report notes, financial inclusion needs to be a central policy issue in order for people to fully benefit from the demographic window. The demographic window period that many developing countries are in now or will soon enter presents a unique opportunity for economic development, but it requires the right policies to improve labor productivity and prepare for an aging population as countries shift out of the “window” period.
However, one issue strikes me when we talk about the future demography of the poorest countries, which have not yet entered the demographic window period: The projected future decline in the rate of population growth assumes that fertility will continue to decline significantly in these countries. Meeting that challenge will require more progress in access to family planning services, access to education (especially for girls), and changing cultural preferences for large families. These are all big “ifs.” What are the implications for financial inclusion if the demographic window fails to open in the poorest countries?
To learn more, check out the full report on our website.