The following post was originally published on the Child and Youth Finance International Blog.

“I am not good at managing my money. I need some extra training so that I can know how to manage myself. Because you know money is like trouble. You get big money and it’s like big trouble, you know,” (A young man living in Nairobi, 2011).

Walk down any street in Nairobi, Dar es Salam, or Cairo, or in a small African town and it seems everyone, including teenagers, has a phone to their ear. Indeed, for those 18 and under, few have known a world without mobiles. Not surprisingly, school-age boys and girls (5-14), teens (14-18), and young people entering the labor force or tertiary education (over 18) are seen as a potential new market for the provision of financial services. While recent experimentation in this space has focused on savings, there is growing consensus that young people should be able to access a full range of financial services, with the priorities changing as they advance in their life cycle (see YouthSave, YouthStart, and Child and Youth Finance International). Not only are youth savings and youth financial education hot topics in the financial services space, but there is also a growing recognition that young people have money, and technology-based financial services offer a gateway for their financial inclusion.

For many young people, owning a phone is aspirational and closely tied to their self-esteem. The surge of young people with phones or phone access and the emergence of low cost mobile banking technology suggests that it may be timely to engage them in accessing digital financial services and building their financial capabilities. As one Filipino student pointed out, “I’d long waited to have my own bank account but I couldn’t meet the requirements of other banks. Good thing in BanKo I can use my student ID to open an account.” While the stars might seem aligned, the limited evidence reminds us that while the value proposition of branchless banking may resonate with young people, this market is still not well understood.

A fundamental question is what volume of transactions can young people be expected to generate. Yes, many young people do receive cash from work or family, but their transactions are small in value and irregular. In the new world of branchless banking where frequency of transactions is key to business sustainability, it is unclear whether the numbers work for youth. Would low fees attract this market segment or could they be a loss leader for building this market? Experience to date suggests that current pricing together with the volume of youth transactions is likely to constrain regular use of technology-based financial services.

There are many more assertions about the practice of mobile banking by young people but few, like the one above, are well grounded. Some of these assumptions are raised here and are proposed as areas of future research:

• Young people own their own phones and use them exclusively and often. However, in most countries there are fairly strict regulatory restrictions limiting age of ownership of mobiles phones (and opening bank accounts). Also, we don’t know who, when, where, and why young people are using mobile phones in different contexts. While mobile data from young users could help the field understand and accelerate mobile money demand, usage, and capability among youth, this source of information poses challenges due to privacy protections and rights of the minor (policy), and proprietary data sharing issues (business) to gain access to mobile usage data.

• Young people can help their elders to use mobile money. Anecdotal evidence suggests this is both an asset and liability. Meanwhile financial service providers see youth relationships as offering opportunities for cross-selling to the adults. Among parents of adolescent girls in Kenya this was estimated at about 10 to 15 percent.

• Entry of 18 year olds into banking through mobiles and electronic cards only may lower pressure on the need for high touch banking in the future. A 2007 survey observed that elders saw visiting the bank as a welcomed social event while young people, more comfortable with technology, appreciated speed and limited person-to-person engagement.

• Young people are highly responsive to text messaging, mobile gaming, and SMS. All have the potential to promote effective money management and build financial capabilities. However, many of the phones used by young people currently lack the bandwidth to support the software to help them to better manage their money.

• To attract young people, specially designed products with lower fees and barriers to entry are needed. This has been the working premise of many current youth savings initiatives, however, there is little rigorous research to support or refute this claim. Behavioral research has also shown that youth are highly unique in their cognitive growth and behavioral development, and from a financial access and capability standpoint, the lessons from mobile money with women and other low income populations may not lend themselves to the child/youth context.

All of this suggests that the jury is out and points to priority areas of research. Neither mobiles nor mobile banking have been around long enough to give us the evidence that will permit us to estimate realistically the cost/benefit of developing this market for young people. Generating the evidence by testing some of these premises would seem a first step in understanding the potential of the youth branchless banking market. Hearing the voices of young people on this issue should be another early step. However, it is probably safe to say that for the moment young people may not be a short-term viable market. Meanwhile, we still feel safe hypothesizing that any investment made in young people needs to be assessed in terms of its likely medium to long term impact.

Monique Cohen is Founding-President of Microfinance Opportunities and an independent consultant. She can be reached on Moniquec@outlook.com.

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So many people wished to salute Monique Cohen that we wanted to give them more room, and so here are two more colleagues expressing their appreciation for her work. 

Heather Clark is an independent consultant who, among her appointments, previously managed CFI’s now-completed Beyond Codes project. Robyn Robertson is currently Director of Financial Education at Opportunity International. Of course, more comments are always welcome.

Recently someone asked me “who do you consider a hero?”

I thought about this for a long time. For me a hero has to have vision, determination, and the wherewithal to make the vision something important, valuable to society, and lasting. It’s much better if the vision battles the current wisdom, as there is nothing like challenging the way the world works.

Implementing Monique’s vision was not easy in the early days. No one wanted to hear about clients, when the focus was on organizational sustainability. Monique battled the early days of impact assessment and continued, amazingly undaunted. She found the vision — “it’s about understanding clients,” she said.

Perhaps it sounds so simple now. But without Monique, without Microfinance Opportunities, we would never have had such a clear path for the future.

So who do I consider a hero? Monique Cohen.

-Heather Clark

Financial capability as a critical life skill, financial education as a service offering of responsible financial providers, consumer protection rather than solely consumer responsibilities… These may now be buzz words and considered mainstream integral components of operations in the microfinance space in 2012 and going forward…

But not so long ago, this was the language reserved for a select few industry radicals. One of whom was Monique Cohen…

Monique was prepared to push, challenge, even confront the microfinance industry’s comfort zones and often rigid institutionally focused perspectives in effort after effort to highlight and validate different, practical, even radical solutions relevant to consumers’ financial capability needs. Monique could be described as a strategic risk taker and fierce visionary prepared to get into the field, get her hands dirty, sit in huts and shelters to listen to the voices, ideas, strategies, solutions, and challenges encountered by the poor in order to deepen her understanding and refine her vision and offerings… Monique has been an inspiration and mentor to many who now passionately seek to step up, build upon her incredible legacy, and continue advocating for the consumer within an ever increasing complex financial landscape…

Thank you for your amazing contributions to the industry and the lives of millions of people across the world who now have more knowledge, confidence, and capability to manage household finance, business cash flow, mitigate risks, and engage with the spectrum of products and services which now is the formal financial sector! From all of us who you have challenged, inspired, invested into, generously provided materials for, worked on projects with or encouraged along your journey… We say thank you!

-Robyn Robertson

Image Credit: FSD Kenya

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This post is part of the Center for Financial Inclusion’s Expert Exchange: Building A Movement Toward Financial Inclusion by 2020, cultivating conversation around the goal of reaching full financial inclusion by 2020. For further questions about this series, write to Sonja E. Kelly, Fellow, Center for Financial Inclusion at ACCION International.

If financial services are a means to an end, then financial education is a means to a means.

Let me explain. Generally speaking, we see a link between financial services and clients  meeting their financial goals. Taking one step back, however, we see that financial education facilitates the success of financial services.

Clients don’t always know what is possible, which limits their ability to make good choices. Financial education is a way of showing clients what is possible. With this knowledge, they will be better able to choose and use financial services.

Let’s take cell phone banking. Because cell phone banking makes services accessible to people in remote locations, many of the people who want to take up cell phone banking have never had a bank account. They may not understand the concept behind banking. Unless we engage in financial education, we are asking them, unfairly, to leap-frog both into a new technology and a financial system that may be unfamiliar, intimidating, and confusing.

Financial education does have a role in helping us to increase the use of our products, yes. But, as Larry Reed mentioned in this forum, it also plays a role in educating us, the providers. I argue that the exercise of financial education forces recognition of the gaps in our customers’ comprehension of how financial products can help them achieve their goals.

Financial education cultivates financial capability in our clients and our target market. When I think about clients who are financially capable, I envision people who know their rights as consumers and have the confidence to exercise these rights. They also have a sense of their own responsibility as clients, and they understand the product terms and conditions and what that means for them.

Financial education does not necessarily need to strive to create equally capable consumers, just equally informed ones. I’m not pushing for lofty goals such as full financial literacy (although I think we can all agree that would be nice). Put simply, a client needs to have the power and the ability to say, “I don’t want that product because it doesn’t suit my needs.” Or, alternatively, to say, “This product best suits my needs, and I know how to properly use it to reach my financial goals.”

Fortunately, this is neither a new nor an untested concept. While I was surprised that financial education was listed as the first priority in the Opportunities and Obstacles survey, I have seen a recent broadening of interest in financial education within the financial services industry. When I first founded Microfinance Opportunities, we wrote one of the first financial education curricula available, targeted to people just above and below the poverty line. Now, however, we see a diverse set of actors, a great deal of interest, and many more delivery channels through which we can create and promote financial literacy. It is this coming together of actors, interest, and products that is creating an exciting collaborative convergence around financial education.

The problem with a “means to a means” is that it is difficult to measure results. This obstacle is a challenging one in an age when we are obsessed with asking the question: “does it work?” We tend to focus on immediate evidence rather than long-term effects. I am certainly not suggesting that we neglect to discuss the usefulness of financial education in a systematic way, but I do think that we should not be so concerned with measuring immediate impacts in financial education. Much like the complexity of measuring the impact of elementary school education, financial education has long-term effects that we must be patient to discover with methodological rigor and statistical significance.

With these qualifications, our “means to a means” can play an integral role in helping us achieve full financial inclusion.

For more information, sign up for updates from the Financial Inclusion 2020 campaign.

Monique Cohen is the founder and president of Microfinance Opportunities. With more than 25 years of field experience, Monique Cohen is widely regarded as one of the world’s leading experts on clients and microfinance services. Monique founded Microfinance Opportunities in 2002 to dive deep into the study of how low-income individuals manage money and risk, and to provide them with the training and confidence they need to make wise financial decisions. Prior to founding Microfinance Opportunities, Monique spent eight years as a senior technical advisor to USAID, working on issues of microenterprise development. Monique has a doctorate degree in economic geography from Clark University. Over the years, she has taught courses at the Boulder Microfinance Training Program; Columbia University; the University of Southern New Hampshire’s Microenterprise Development Institute; and has been the keynote speaker at dozens of conferences and events.

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Rose lives in a village about 5km from the provincial town of Murang’a in the Central Province of Kenya. Her husband works in Nairobi. During the time when our diaries study interviewed her, between November 2009 and June 2010, she earned very little, less than $10 per week.  But her husband sent her 29 remittances through Safaricom’s M-Pesa mobile money service from Nairobi over a 33-week period.  He also brought cash home on visits. Rose contributed about Ksh.270 ($5.70) to a merry-go-round (a type of ROSCA) about 25 times during the course of our study. At the end of February her husband sent her Ksh.10,500 (about $210) in three remittances in one week. She withdrew all but Ksh. 500 in the same week and spent it on construction materials. Her husband came home that week and stayed for two weeks. He then returned to Nairobi, and on his return he sent Rose more money.

Rose is one of the 92 respondents Microfinance Opportunities (MFO) tracked during an eight-month Financial Diaries study in Kenya.  This study yielded detailed transactional data that enabled us to better understand the economic lives of low-income individuals and households in two rural areas and one urban area.

The diaries also provide a close look at how low-income Kenyans actually use the now-famous mobile money service, M-PESA. M-PESA is an SMS-based mobile money transfer system owned and run by Safaricom, the leading mobile phone operator in Kenya. There are 30,000 M-PESA agents nationwide through whom people can deposit cash into or withdraw cash from their M-PESA accounts. Once they have cash in their accounts, customers can text their money to anyone in the country who has a mobile phone. The recipient can then either on-send the money to someone else or cash it out at an agent. There are over 13.5 million M-PESA accounts. The adult population of Kenya is 20 million.

As with our other financial diaries study in Malawi, and studies performed by other researchers such as Stuart Rutherford, Daryl Collins, and Orlanda Ruthven, the data from Kenya show that the poor handle a lot of cash, often more than twice their income.  Furthermore, they use a wide variety of informal financial services, including intra-family loans and gifts as well as rotating savings and credit associations.

MFO’s diaries methodology captures all the financial transactions of the previous week.  For transactions conducted through M-PESA and other mobile money  providers, we asked respondents the actual date on which they deposited cash into M-PESA, withdrew cash from their accounts, and sent or received e-money.  The data also capture with whom people transacted, and transaction locations. This provides insight into sequences of transactions and how they relate to each other, allowing us to piece together stories like Rose’s. They also allow us to aggregate the data for more comprehensive analyses.

M-PESA and Social Networks

Analysis of the transactions recorded through the diaries gave us powerful insights into how respondents used M-PESA. We found that:

• 53 of the 92 diaries participants used M-PESA at least once.
• 80 percent of M-PESA remittances were within extended families or between friends, and mostly for personal or household use;
• The 20 percent of transactions with “associates” were almost all business transactions;
• A large majority of the remittances crossed distances greater than 20 kilometers.

These findings strongly suggest that Safaricom’s “send money home” marketing of M-PESA has been very effective within the low-income market in Kenya. This is exactly what people appear to be doing. The “send money home” marketing campaign did not create a new behavior, but rather tapped into something people were already doing – giving and receiving money through their social networks. M-PESA just made it easier and cheaper to do this.

M-PESA and Risk Management

We also looked at the role M-PESA played in helping people manage risks like health emergencies.  Of the 60 hospital bills paid by our respondents during the study period, more than a third coincided with a cash withdrawal from M-PESA either in the same or preceding week. Furthermore, when we traced the cash withdrawal back to its source, it was common to find that the money had been recently sent from afar (more than 20 kilometers) to the person paying the hospital bill. This suggests that M-PESA supports the ability to rapidly access health services in times of need.

This use of M-PESA in an emergency was consistent with the way people used M-PESA generally. Our data suggest that they did not keep money in M-PESA. Over two-thirds of the time people cleared out any money they had received through M-PESA or deposited onto M-PESA, nearly always on the day it was received and before any new money flowed into their accounts. The median average daily balance of the respondents in our study was about US$3.70 in purchasing power parity (PPP) dollars, or US$2.20 in exchange rate dollars (All other dollar amounts quoted here are PPP).

Beyond ‘Send Money Home’

Despite M-PESA’s popularity in Kenya, it is a long way from replacing cash: Over 95 percent of transactions were still in cash. This is not surprising, given that many transactions in the low-income market segment are very small and the cost of using M-PESA for tiny transactions is prohibitive. But we also found little use of M-PESA for business purposes, where the transactions tended to be larger. We think this phenomenon may be due to a trust issue: People are willing to send money to friends and family because they can call them to verify receipt of the remittance; they are less trusting of long-distance verification with an “associate” with whom they do business but who is not part of their social network.

M-PESA is a great success. Millions of Kenyans use it regularly. Millions of dollars flow through M-PESA each day. It holds out the hope that it can be the platform for the provision of additional formal financial services such as savings, credit and insurance. But that nut has yet to be cracked, especially in the low-income market. Meanwhile it helps low-income Kenyans manage risk and maintain and reinforce their social networks through which cash gifts and loans flow. That is a good start.

Guy Stuart, Ph.D. is an independent consultant, Senior Advisor to Microfinance Opportunities, and Fellow at the Ash Center, Harvard University

Monique Cohen, Ph.D. is Founder and President of Microfinance Opportunities

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