Many of the challenges to saving faced by the world’s poorest people were highlighted in the recent Washington Post article “Microsavings Programs Build Wealth, Pennies at a Time.” Among others, the article articulated two especially salient points around microsavings: 1) we know the poor save, and 2) savings can help poor people withstand shocks to their income (such as unexpected medical emergencies or job loss) without going further into debt and poverty. However, low-income people tend to rely on informal methods of savings, often putting their money at risk of being lost, stolen, or ruined by floods or rodents. Having a safe, reliable place to save is both beneficial to and desired by the world’s poorest people.

The Washington Post article included a link to a research study on savings I conducted while at the Grameen Foundation last July. I spent a month in hot, humid, and rainy Varanasi, India, on behalf of Grameen’s Microsavings Initiative, where I had the privilege to meet dozens of Cashpor Microcredit borrowers and savers. Cashpor Microcredit began offering microsavings in July 2011, using mobile phones to bring savings services to its poor, female clients. Curious about whether the mobile phone acted as a barrier to the savings services, I spoke with 65 women who either were current savers or wanted to become savers with Cashpor. My research revealed that Cashpor’s savers faced many challenges to saving, and one of these challenges was the mobile phone. Most women had limited or no access to a phone and many had limited numeracy and literacy. This, combined with low self-confidence, meant that they turned to others, often family members, including children, for help using the devices.

It’s not just low-income adults who can benefit from formal savings mechanisms. Youth can as well. Many youth around the world have access to small, erratic incomes, either as an allowance from their parents or from odd jobs — particularly if those youth are not in school. Low-income youth face many of the same challenges as adults face in terms of informal saving, but in seeking formal savings services, youth face unique regulatory barriers and knowledge deficits that keep them from being able to use formal services when they’re available. These problems are particularly pressing when considering the potential for impact. It is a given that learning to save early and having formal savings accounts help youth manage their income flows and transition into adulthood more easily.

As with their adult counterparts, mobile phones are widely seen as a potential vehicle to bring financial services to low-income youth. This summer, New America Foundation’s Global Assets Project, a member of the YouthSave Consortium, will publish a paper that highlights the promise and challenges to using mobile solutions to accelerate financial capability among low-income youth. The paper will provide an overview of current thinking and experiences as well as data from a pulse-taking survey that consults leaders in the youth financial services field. The paper aims to uncover what the youth financial services industry doesn’t yet know about how mobile phones are being used by youth and by the institutions who seek to reach them. Some important questions that will be addressed are:

1. Are mobile phones the most effective tools to reach youth?
2. Do the lessons learned around adult access and usage of mobile phones apply to youth?
3. How do we bridge the gap between financial services and youth in strict regulatory environments which limit their access to basic tools like SIM cards?

While surveying savers in India, I found some surprising results, including on children’s involvement in their mother’s use of the phones. I asked each woman if she used her phone with her children and if her children knew how to use a mobile phone. A majority of women said not only did they use their phones with their children, both boys and girls, but that their children taught them how to use the phones. Considering that a vast majority of children have no exposure to technology in schools, this is an incredible fact and one that illustrates how much potential youth have to learn new technology and possibly increase their access to financial services through its use. Our paper begins with the firm belief that children and youth across the globe have the capacity to use mobile phones, regardless of literacy, numeracy, and level of education. The challenge remains to develop products that are appropriate for youth while providing them with the financial education needed to properly manage their finances in a formal system.

Image credit: “School Bus” by Kallol Sen, India. / CGAP Photo Contest

Have you read?

Are Youth-Inclusive Financial Services in MENA a Driver of Financial Inclusion?

When Demographics Shift the Way We Think about Youth Finance

Mobile Money Could Mean Big Benefits for Lower-Income Women

Microfinance institutions (MFIs) have many questions to consider when developing new products. What are the future clients doing now?  What are their motives? What characteristics can help segment clients into appropriate groups? How large is the clientele?  Are there enough potential clients to warrant introducing a new product? How likely are clients to change specific behaviors? Are there key relationships between savings, credit and insurance needs?

We need answers to these questions to design products that respond to the market’s needs and are economically viable for institutions to provide. My research into how clients interact with financial services, The Financial Behavior of Rural Residents: Findings from Five Latin American Countries, looks at exactly these questions.

Many of the findings are intriguing. I was excited, for instance, to find that for many clients, the amount they save is more closely related to the objective for which they are saving than with their socioeconomic level.

I have no doubt that some of the findings described in the report are known to those who work close to the rural market; other findings perhaps are new. The purpose of the report  was to aggregate  the findings on consumer behaviors in one place that can serve as a resource to help the MFIs forecast demand, build a map of consumer beliefs for marketing purposes, and set up baselines to measure product performance.

Certainly the study reveals the need to develop better credit offerings for the rural market. It also showed how often the potential clients combine credit and savings to reach their objectives. Also, the study shows different ways of savings that we need to keep in mind when developing a product, especially the fact that saving is not always done little by little as, on average, 25 percent of the sample save from extra income received in one large lump sum, for example from a crop sale.

I’m inclined toward the idea of having a metric of the level of commitment to savings in specific markets. The study found that 13 percent of consumers set aside savings before spending newly acquired income. However, 60 percent of the target market saves after spending.  They set aside what is left over after paying their expenses. “Saving before spending” indicates that the individual is prioritizing savings before all else. As a market gets more accustomed to saving we should expect to see more people “save before they spend”. From what I know about other regions, I suspect that this style of saving is higher in Asia and Africa.

There is still more to research and learn about rural households.  I recently spent time visiting a livestock trade market in rural Colombia. I found many interesting similarities between this market and stock exchange markets; but instead of stocks and bonds there are cows and pigs. I would love to investigate and develop ways to increase liquidity in rural markets.  Two examples of low liquidity in the financial lives of the rural poor: livestock is used as an investment and currency at the same time, and the present consumption of households typically relies on their future income after harvest.  Developing financial tools to facilitate greater liquidity would address an important financial need. I was thinking of forms of factoring (microfactoring?) or mechanisms using the concept of warehouse receipts. Could technology help to make these ideas work?

In a similar vein, it is noticeable that insurance services underlie the success of other financial products, especially for farmers because of the inherent risks in agriculture.  Insurance makes it easier to take on credit and supports long-term planning— both of which are essential for rural households.  With accident insurance, for example, households might use part of their backup savings for investment rather than as a form of insurance.

I hope others are able to build on these findings and deepen our understanding of how financial service providers can better address client needs.

Image Credit: Accion

Jacqueline Urquizo is an independent consultant working on Market and Consumer Intelligence, Strategic Marketing and Product Development for low income markets. Formerly, she was the Product Development Team Leader and Market Intelligence Senior Director at Accion.

Have you read?

The Financial Behavior of Rural Residents in Latin America

Understanding Savings Behavior: A Comment on “The Financial Behavior of Rural Residents”

What Do We Really Know About Financial Behavior in Rural Areas?