> Posted by Meghan Greene and Sonja E. Kelly, Manager and Fellow, 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.”
What’s in a number? Part of the Center’s Financial Inclusion 2020 work is to think about how global trends affect financial inclusion demand—we’ve been doing so in our Mapping the Invisible Market work and in our exploration of the client perspective.
In this work, it can be useful to think in terms of age. In our demographic work we examined how a person’s stage in life might affect his or her demand for financial services. We also discovered that many developing countries have rapidly aging populations. But just how rapidly the populations are aging depends on the definition of old. When calculating dependency ratios (the ratio of those who are dependent to those who are in the working age population), the UN recommends the following definitions:
- “Child” is a person under the age of 15
- “Youth” is a person aged 15-24
- “Old age” is age 65 and above
Percent of the global population that is elderly, with varying age cutoffs, 2011.
These standards are often invoked in country comparisons. But are they really appropriate? If “older adults” are 65 and over, what does that mean in very poor countries, especially in Africa where the life expectancy is under 55 years? If we calculate “older adults” as age 60 and up, then they make up over one-fifth of the global population. If we calculate the same group as 75 and up, they are less than one-tenth of the global population.
Indeed, the age delineations seem to break down when we look at particular contexts. For example, the National Corrections Institute, a U.S. prison research organization, defines “elderly” as 55 or older because an incarcerated person’s body ages faster than someone not in prison.
As we look at differentiating by age in our work with financial inclusion (or in any work for that matter), how do we move forward meaningfully? In defining “old,” age is certainly one factor, but so is culture, health, lifecycle stage, income, and a host of other factors.
Tim Nourse, of Making Cents International, concurs that broad age groups, while convenient, mask important nuances. That’s why Making Cents (which uses the 15-24 age range for youth as a starting point for discussions) recommends segmenting the market further through market research. One of Making Cents’ emerging guidelines for youth financial services is:
“Develop products and services that reflect the diversity of youth: The youth market contains sub-segments related to age (legal age), life cycle stage (marital and parental status), gender, education, employment status, and vulnerability. These differences should be taken into consideration in product design and delivery.”
What becomes important, as Tim points out, is not the age that we choose as a dividing line, but rather what the age represents. We have age cutoffs for several reasons. First, and most obviously, there are legal definitions to be considered, especially when it comes to youth and informed consent. Second, however, we choose age as a dividing line based on the major life events that we predict in the lives of individuals. Someone who is considered a “youth” becomes an “adult” at age 25 because on average people are making major life changes at that point: marriage, children, and even the first steps in a career become realities. We use age 65 because this is another major transition point—people in formal employment often shift from earning money to using money they have saved or relying on non-work related sources of income. Our work on demographics discusses the need to use a lifecycle approach to financial services. If we truly listen to the needs of clients beyond their birth dates, we will be in a better place to develop the financial services that can help them most.
For more information on Financial Inclusion 2020, sign up for campaign updates.
Data source for figures: UNECE Statistical Database, compiled from national and international (Eurostat and UNICEF TransMONEE) official sources
Have you read?
Facebook
Twitter
1 comment
Comments feed for this article
May 8, 2013 at 3:13 am
John Gitau
Meghan and Sonja, this is a great post! I would have thought age is such an important consideration in financial services design but you have disabused that illusion. As a matter of fact, life cycle seems to be the all time best approach given its multi-dimensional considerations.
Taking demographics, we also realize that some variables within it play bigger roles than others when thinking of financial services designs. For example, income is a demographic variable. In a factory setting, you may have a 20 year old employee working with a 55 year old colleague both earning the same wage. They may both live in the same neighborhood encountering all challenges that face people of their income level (irrespective of their life cycle stages). Income, in such a case almost blurs or overshadows all other considerations including stage in life cycle. Income seems the common denominator that cuts across all other demographic variables and financial services designed around income can have a much more dramatic impact across a bigger population swathe. Every stage in life cycle requires money. Categorization around income covers a wider bracket than even life cycle. In my country, an employed youth may have a young family with children below school going age but he could be busy educating his siblings with a long way to go before completing school. A financial services provider assuming that such a young man would be a good customer for a savings product may get it very wrong because he indeed would be needing credit to help pay school fees. And we are talking of many youth caught in this predicament due to the level of country’s development. Such a young person belongs to one life cycle bracket but his financial activities are distorted by extended family burdens. An above 65 person may be written off as dependent but could be at her best in investment, creating businesses that engage the youth in employment.