AIM Youth. Saving Together: Group-Based Approaches to Promote Youth Savings. I like being able to save money and come together in a group every week.

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1 AIM Youth Advancing Integrated Microfinance for Youth Saving Together: Group-Based Approaches to Promote Youth Savings By Rossana M. Ramírez and Laura Fleischer-Proaño DECEMBER 2013 I like being able to save money and come together in a group every week. This is what Nianama Traore, age 17, says when asked about her experience with a group-based savings project. Nianama lives in a poor rural village in southwest Mali, and is engaged to be married. Unable to save money before joining a youth savings group, Nianama now reports being able to buy shoes and thinks about having her own business in the future. Introduction This paper examines the potential of poor youth to harness the power of groups to develop positive savings behaviors and long-term savings habits. Because youth are at a stage in their lives when they are particularly susceptible to peer influence, groups can positively impact their financial behaviors through a group structure, integrated financial education and the dynamics of social pressure and social capital. When young people start saving early, they increase their potential to develop a savings habit that can carry into their adult lives, strengthening their financial capabilities as they begin to face increased financial and social responsibilities.

2 Saving Together: Group-Based Approaches to Promote Youth Savings 2 The significance of this approach became evident as Freedom from Hunger set out to test and learn from three different group models of financial services integrated with financial education as part of its Advancing Integrated Microfinance for Youth (AIM Youth) initiative developed in partnership with The MasterCard Foundation. We explored the promise of groups as a platform to cultivate a habit of savings among young people by providing a mechanism to save regularly and to promote good money management skills through financial education. In the course of three years of implementation, monitoring and evaluation, we are finding stronger results in promoting savings behaviors among a greater number of young people, when they are able to save in a group and receive financial education than when they save individually. A review of similar group models by a variety of organizations around the world provides additional supporting evidence about the strength of groups, especially for young people. A group-based savings approach is defined as one in which youth come together and agree to save regularly on a voluntary basis while following a set of group-defined norms. The focus is on groups of young people because they are often at a point in their lives when they may already meet in groups regularly (for example, in villages or in school) and may not face the time constraints and responsibilities that many adults face. A group might be formed through a community-based organization following a savings group or village savings and loan association model, or it might be formed by a formal financial institution that links youth to a savings account. For young people living in remote, rural areas, a savings group approach might be the only savings mechanism readily available. After providing a brief background on youth and savings, this paper examines the barriers to saving that poor youth face. An in-depth analysis of how a group-based savings approach can address those obstacles follows. We conclude by exploring the limitations and opportunities that should be considered when engaging in groupbased savings for youth. Youth Savings Groups: A Classic Example of a Group-based Savings Approach Youth Savings Groups are being implemented in multiple countries in Africa, led by international development organizations including Freedom from Hunger, Plan International, CARE and Catholic Relief Services. In Mali, Freedom from Hunger and its implementing partners CAEB ( Conseils et Appui pour l Éducation à la Base) and Le Tonus have implemented youth Savings Groups following the Saving for Change methodology. With this approach, a group of about young people girls and/ or boys meet on a weekly basis to save and lend money to each other. With initial support from a trained facilitator, an elected Management Committee facilitates group meetings and helps enforce group rules. The group jointly decides on the amount that every member will save at each meeting, which is stored in a cashbox. As money accumulates, members agree to make the group fund available for loans to group members. Members also agree to a social goal that they will collectively work towards, such as a village sanitation project or promoting malaria-prevention strategies. Members continue to meet on a regular basis over approximately one year, when the group fund is distributed. This approach works especially well in the rural areas of Mali, which have not been traditionally reached by formal financial service providers and, as a result, have no other reliable options for saving.

3 3 Saving Together: Group-Based Approaches to Promote Youth Savings A Focus on Youth and Savings The United Nations defines young people as those between the ages of 15 and 24 years old. 1 For the purposes of this paper, the definition has been extended to cover primarily young people between the ages of 13 and 24 years. The focus on youth in the development field can be explained by the convergence of the youth bulge a demographic condition at which the proportion of youth in the population reaches a peak and high levels of youth unemployment, which exacerbates levels of poverty. 2 This is especially a concern in many less developed countries that have a greater proportion of youth and greater levels of poverty, and where poverty can be more easily passed from generation to generation. For example, in sub-saharan Africa young people comprise the greatest portion of the population. 3 This is the only region globally that will continue with a substantial growth in its young population. But this growing youth population is faced with limited economic opportunities with unemployment rates for young people in sub-saharan Africa at 11.6 percent, young people are twice as likely to be unemployed as adults. 4 While increasing economic opportunities and transitioning out of chronic poverty require a multi-dimensional and cross-sectoral strategy, the accumulation of savings and assets over time is one approach that is gaining attention for its potential to improve the economic wellbeing of people living in poverty. 5 Savings are also critical for young people who start their own enterprise and need to invest in material and/or equipment. While savings alone will not lift young people out of poverty, they can strengthen their resilience to face financial shocks by helping to build assets even in the form of small savings early in their lives before they face greater financial and social responsibilities in adulthood. Young people can save However, a question often raised is whether young people can accumulate savings if they are living in poverty, are unemployed and have no sources of income, or whether promoting savings can lead to young people dropping out of school to engage in income-generating activities. We know from a variety of studies conducted around the world that poor youth do have access to money albeit in very small amounts and engage in various forms of short-term and non-formal savings. 6 Young people, especially adolescents, have access to money from their parents, who give them money for their schooling, transportation and meals. 7 More importantly, the reality is that many poor youth are already engaged in some form of income-generating activity, though often on a small-scale, such as agricultural work and selling fruits and vegetables at the market for youth living in rural areas, and cooking, doing construction work or housekeeping for youth in urban settings. Youth report engaging in these activities precisely to ensure they have money for their own expenses and to help meet household needs. These studies also show that youth save in informal ways hiding the money in a box or a hole in the ground or sometimes by giving it to their parents, though they report that none of these methods are safe. 8 These findings and many youth savings programs around the world have debunked the myth that poor youth cannot save, a finding that is consistent with the evidence on poor adults ability to save. 9 Young people who save now will save later While research is limited and primarily focused in developed countries, there are a few studies that point to the potential for savings in childhood leading to continued savings later in life and improved financial

4 Saving Together: Group-Based Approaches to Promote Youth Savings 4 well-being in adulthood. According to a longitudinal research study conducted in the United States by Friedline, children are likely to continue saving later in life over and above their parents financial resources if given savings accounts when they are young. That is, when children have savings accounts early in life, they continue to have savings accounts later in life, perhaps developing relationships with mainstream financial institutions and continuing to access basic financial services. 10 Moreover, an 18-year longitudinal British study also finds that saving during adolescence is linked to saving in adulthood. 11 The authors of this study note that the findings are important for policymakers, educators and parents since they imply that encouraging adolescents to save could go some way to shaping their behaviour in later life. Although these studies focus on adolescents living in wealthy countries with higher standards of living and access to formal financial institutions, both draw from nationally representative longitudinal survey data, implying that the participants come from a variety of socioeconomic backgrounds. Moreover, while the authors of the British study note that youth whose parents have savings on their behalf and have higher net worth are more likely to have higher amounts of savings as young adults, they also find that individual psychological factors such as attitudes about managing money are critical in this equation. 12 These studies suggest that saving at a young age could help develop a savings habit that continues into adulthood. The importance of instilling this habit in young people, especially adolescents living in poverty, is that they are at a point in their lives when they don t typically face as many financial responsibilities as adults (such as having children, managing a household, paying for health expenses), so there is a potential for helping youth build assets and break the vicious cycle of intergenerational poverty. Barriers to Saving While there seems to be a growing consensus about the importance of increasing the savings capability of youth living in poverty, young people face many challenges in accumulating enough money to meet even their most basic needs or to lead to future asset-building: small and irregular savings amounts, lack

5 5 Saving Together: Group-Based Approaches to Promote Youth Savings of access to safe savings places, onerous savings account opening requirements, psychological biases and sub-optimal financial behaviors. 13 Small and Irregular Savings Amounts When poor youth save, they typically do so irregularly and informally given their sources of income. In a market research study conducted in Mali, poor youth reported being able to save a range of 25 CFA to 500 CFA (US$0.05 to $1.10) on a weekly basis. 14 With such limited funds, they will have difficulty depositing their money in a formal savings account because of the minimum deposits and account fees that eat away at their scant funds. For example, in Mali opening up a savings account with Nyèsigiso, a credit union, requires a minimum of 9,000 CFA ($18), including minimum opening deposits and fees. Much like Rutherford concluded for poor adults in The Poor and Their Money, poor youth can and do save, but the amounts can be even smaller and more irregular than that of adults. 15 Reports from monitoring visits of youth Savings Groups in Mali indicate that young people save as little as 50 CFA, 16 compared to saving upwards of 100 CFA observed among adult groups. Therefore, the challenge is even greater to develop appropriate financial products and relevant financial education that meet the savings capacity of youth. Limitations on Physical Access to Safe Places Youth living in rural areas, where poverty levels are often higher, have limited access to formal financial services because the branches are located in more populated, urban centers. Because of a lack of safe places to save, youth may either hide their money or give it to their parents. Youth report being aware that these savings methods are inadequate, but have no other reliable options. 17 Savings Account Opening Requirements Youth also face macro-level and institutional challenges. As part of know your customer (KYC) requirements aimed at preventing fraud and money laundering, financial institutions require a form of identification as well as other onerous documentation such as proof of address, which many youth lack. 18 In Mali, for example,

6 Saving Together: Group-Based Approaches to Promote Youth Savings 6 the cost of obtaining a formal identification document is 3,200 CFA (US$6.40). For a young person who is able to save only 100 CFA (US$0.25) per week, it would take more than six months to save that amount. Youth living in rural areas with little or no access to financial institutions are further limited in their ability to access financial services because of the cost and time needed to visit a bank branch. 19 Also, youth who are minors (defined as under the age of 18 in many countries, such as Burkina Faso, Ecuador, Ghana, Malawi, Mali, Senegal and Uganda), are not legally able to open a savings account on their own and require parental or guardian approval, which adds to the burden and complexity of accessing formal savings services. 20 Psychological Biases and Sub-Optimal Financial Behaviors Young people often feel little urgency to set their money aside. In Accelerating Financial Capability, Pathak, Zimmerman and Holmes synthesize behavioral economic theory to explain the psychological biases that keep people from making rational savings choices. 21 The biases they present include the tendency to make financial decisions based on what they see other people doing, such as saving under the mattress (availability bias); the tendency to continue doing what is comfortable and familiar, such as not regularly setting aside money (status quo bias); and the tendency to prefer present-day smaller rewards such as buying something now, over long-term larger rewards, such as saving for the future (hyperbolic discounting). While these biases apply to most people, they can be particularly acute with young people who lack experience and exposure to financial services. During monitoring visits in Ecuador of AIM Youth activities, young people report not feeling a sense of urgency to open up a savings account, even when they indicate that they can meet the accountopening requirements. As a result of the psychological biases, many youth demonstrate sub-optimal financial behaviors. Advancing Integrated Microfinance for Youth (AIM Youth) In implementing its AIM Youth initiative, Freedom from Hunger selected to work in Ecuador and Mali because of their high rates of poverty, especially in the rural areas (Table 1). As part of its mission to find self-help solutions to chronic hunger and poverty, Freedom from Hunger focuses much of its work in rural areas, where poverty levels are greater according to the World Development Report, three out of four poor people live in rural areas. 22 For the AIM Youth initiative, the identification of several financial institutions and NGOs in Ecuador and Mali that had expressed a strong desire to offer services to young people, and the availability of local Freedom from Hunger offices made these countries a logical choice. Table 1. Poverty Levels (Entire Population) Rural Urban Ecuador 47% 25% Mali 75.9% 30.1% Source: World Bank, World Development Indicators, 2005 (National Poverty Line)

7 7 Saving Together: Group-Based Approaches to Promote Youth Savings Freedom from Hunger s Group-Based Approaches to Youth Savings The framework for group-based approaches draws primarily from Freedom from Hunger s experience implementing and evaluating three different models of integrated services. Table 2 outlines the models and where they were implemented. Table 2. AIM Youth Models Type of Institution Cooperatives Cooperatives Non-governmental organizations Country (Location) Ecuador (primarily rural) Mali (urban) Mali (rural) Financial Service Individual savings accounts (formal financial service) Group savings accounts (formal financial service) Youth savings groups (non-formal financial service) Integration of Financial Education Financial education sessions are delivered first in a group setting, primarily through schools. Participants receive information and are encouraged to open an individual savings account. Youth save on an individual basis. Group is formed first, youth agree to save and open a group savings account, typically in an 8-week period. Financial education is delivered after group formation. Group is formed first, youth agree to group norms and start saving within a month, typically in a cashbox. Financial education is delivered after group formation. Key Characteristics No opening or maintenance fees and an affordable minimum deposit. Group approach enables youth to more easily meet opening account requirements (minimum opening amount and identification). Based on a savings group methodology, in which youth meet weekly in a group to save and loan to each other. Although all young participants receive the financial education in a group setting, only the two models tested in Mali were structured to save as part of a group. The youth savings groups and the group savings accounts are based on the same methodology, where youth meet on a regular basis (usually weekly), agree on a certain amount to be saved every week over a period of time (usually 9 to 12 months), and distribute the combined funds at the end of the period. The main differences between the two approaches include the following: 1. Youth with a group savings account deposit the money into a formal savings account at the credit union, and funds are not available for internal loans. 2. Youth in a group savings account must save enough to meet the minimum opening amount, as well as identification requirements. Throughout the three years of implementation, it became clear that the group savings format resulted in stronger savings behaviors. Table 3 shows outreach figures and savings for each model. In Mali, because the groups were formed for the specific purpose of saving, all participating youth had savings (either non-formal or formal), and the majority (over 70%) received the financial education. In contrast, while over 11,000 young people participated in financial education sessions, a smaller number accessed the savings service that was available to them.

8 Saving Together: Group-Based Approaches to Promote Youth Savings 8 Table 3. AIM Youth Outreach Figures as of June 30, 2013 Indicators Mali Savings Groups and Financial Education Rural Areas Mali Group Savings Accounts and Financial Education Urban Areas Ecuador Individual Savings Accounts and / or Financial Education Rural/Urban Areas Total number of youth 24,070 2,540 11,139 Number of youth with savings Number of youth who received financial education 24,070 2,540 4,820 19,391 2,337 11,139 Impact research data conducted in both Ecuador and Mali shows similar results. Surveys of young people in Ecuador indicate that only 27 percent report opening a savings account, though 76 percent report having savings through formal and non-formal mechanisms. However, when asked about the frequency of saving, 65 percent of participants in Mali report saving money during the week in most weeks, while only 9 percent of participating youth in Ecuador stated saving on a weekly or daily basis. 23 The monitoring and evaluation results are not surprising in the group setting, the youth commit to saving on a weekly basis. With the individual accounts, although cooperative staff encourage savings on a regular basis by visiting young people at their schools and houses, the visits are not weekly, and there are no built-in mechanisms to enable young people to save on a regular basis. We theorize that group structures, social capital, social pressure and integrating financial education into group meetings integral elements to the group approaches in Mali are key factors that explain the different results in Mali and Ecuador because they help address many of the barriers to saving for young people. The rest of this paper will elaborate on how each of these mechanisms helps overcome challenges and encourage young people to save. Group structure Research suggests that peer groups can be multi-faceted and can lead to both positive and negative changes. 24 What makes group- Group Savings Accounts Freedom from Hunger and Nyèsigiso, a credit union federation in Mali, have developed a group savings account, modeled after the youth Savings Group methodology. Since the group effectively holds only one savings account, Nyèsigiso only requires identification from the three Management Committee members. In a country where having a personal identification is an exception because of the bureaucratic burden and the cost, this structure makes it easier to meet this requirement. Moreover, since the savings account requires a minimum opening amount of $18, the group structure enables youth to meet the account opening requirement by contributing collectively to reach that amount, especially when considering that individual youth in Mali report being able to save only $0.05 to $1.10 on a weekly basis. The total amount in fees is distributed among the 15 members, so the individual amount is reduced to approximately $1.20. Moreover, group members are able to save the minimum amount over an eight-week period, which reduces the weekly amount needed to save to $0.15, which is within the savings capacity reported by youth.

9 9 Saving Together: Group-Based Approaches to Promote Youth Savings School Banking Another group model being implemented in multiple countries is School Banking, in which schools are leveraged as an entry point to reach youth (and children) and facilitate access to savings. In this model, student classes are already constituted into groups. In Ecuador, Freedom from Hunger has partnered with financial cooperatives to reach youth through this key entry point. The field staff of the cooperatives visits the schools to facilitate a series of dynamic and engaging financial education sessions and provide information about an individual savings account offered by the cooperative. Some cooperatives are able to receive savings deposits at the schools utilizing SmartPhones and handheld mini-printers. Although the accounts are individual, the delivery approach is groupbased, in which youth commit in front of each other to meet their savings goals. However, for school banking to be feasible, banks must be in a regulatory environment that allows for agent banking or branchless banking to facilitate transactions electronically or outside the branch. School banking also requires high levels of approval from the Ministry of Education and local coordination and buy-in from teachers and school administrators to be effective. Child and Youth Finance International, an NGO based in Amsterdam, is building a movement around their own defined concept of SchoolBank. 29 With this approach, Child and Youth Finance International is encouraging schools to become intermediaries, with the potential for teachers collecting documentation to open accounts and also taking savings that are then deposited at the financial institution. based savings approaches have a potential for leading to desired savings behaviors is the structure of the group, where participation is voluntary, and the group has a specific format focused on a particular goal savings agreed upon by all participants. In a study by Hansen, youth participating in structured voluntary activities, such as community organizations and vocational clubs, reported having more experiences related to setting goals and effort, when compared to hanging out with friends or in required academic classes. 25 According to Larson, these behaviors are the result of an environment where young people are directing and regulating their actions in pursuit of a goal. 26 In essence, a group structure centered around savings helps motivate young people to reach their goal to save, overcoming some of the psychological barriers, such as a lack of self-motivation to save. Group-based approaches, whether Savings Groups or youth-group savings accounts, also provide a safe place for poor youth to save. In a savings group, the cashbox in which the money is placed is held by one person while the key to the cashbox is held by another, thereby providing a safeguard mechanism to those funds. Since the counting of the money is carried out in front of all members, everyone knows how much money is being held at all times. In addition, because it is more difficult to access savings that have been put into a collective group account at a formal institution or within a non-formal youth Savings Group, it is easier for poor youth to resist the temptation to use their savings on unnecessary expenses. The group also represents a safe space where young people can congregate and bond. The group structure can also lighten the burden of the accountopening requirements because young people can collectively save for the opening balance. Similarly, if identification is required to open an account, not all members are required to obtain it; rather, three members of the youth group can open the account on behalf of the others. The structure of a group approach can be especially influential for young people because it can lead to a lifelong savings habit. A savings habit can emerge by developing an ongoing cycle: a habit loop, a concept developed by Charles Duhigg and referenced by Pathak in Creating Creatures of Habit, which results from

10 Saving Together: Group-Based Approaches to Promote Youth Savings 10 establishing cues, routines and rewards. 27 Pathak explains that the habit loop is created when people engage in some type of routine where they are cued into a specific behavior and are rewarded for the behavior. The reward helps reinforce the behavior the next time the person receives the cue. In a classic Savings Group approach, the youth meet to save on a weekly basis over the period of one year. The youth Savings Group approach creates a continuous loop that conditions the development of a savings habit. Members engage in a routine (weekly meetings that follow the same agenda), receive a cue (members are called one by one to save in front of the group) and are rewarded (access to internal loans and a lump sum of money at the end of the cycle). We are now seeing early evidence of how this habit is formed. While impact research is ongoing with youth Savings Groups, preliminary findings from Freedom from Hunger s research point to positive results among youth, with greater savings from participants in youth Savings Groups than non-participants in comparison groups. 28 When young people start saving early, they increase their potential to develop a savings habit that can carry into their adult lives, strengthening their financial capabilities as they begin to face increased financial and social responsibilities. Financial education In addition to saving and borrowing in a group, financial education can help address the barriers to youth saving in a group-based savings approach. Groups represent a promising conduit to building the financial capability of poor youth when access to and use of savings services (formal and non-formal) are integrated with financial education. The combination of these two elements is critical because the education develops financial knowledge, skills and attitude changes, while the savings service provides an opportunity to immediately apply the new learning, resulting in the desired behavior change. As the financial capability of youth is built in the social setting of a group, integrated services can help achieve the full financial inclusion of young people, an important objective given their limited access to financial services. 30 Financial inclusion is defined as a state in which all people who can use them have access to a full suite of quality financial services, provided at affordable prices, in a convenient manner, and with dignity for the clients. 31 Thus, financial education equips young people with the knowledge of how to access and effectively use those financial services. For example, Freedom from Hunger s financial education sessions guide and equip young people to establish savings goals and a plan to reach their goals; make informed savings and borrowing decisions; identify safe places to save; make good money management decisions by differentiating between needs and wants; and plan for difficult times. Youth with access to formal savings accounts also learn how to meet the account opening requirements, how to fill out deposit and withdrawal forms and how to access the bank.

11 11 Saving Together: Group-Based Approaches to Promote Youth Savings Financial education can be easily incorporated in group approaches as the education can be delivered at the regular group meetings. The delivery might be done either by the same staff facilitating access to the savings service (for example, staff of a financial institution in the case of savings accounts, or staff of NGOs forming youth Savings Groups). To engage young people, the financial education needs to follow key principles of youth learning: Relevant and practical to the actual financial needs of the youth. Dynamic, participatory and fun to engage youth, but without distracting from the learning objectives. Respectful and safe so participants feel their ideas are valued. Inclusive of their family, especially for minors, who need the support and sometimes approval of their parents to engage in certain savings activities. Do No Harm principle that promotes and protects the safety, dignity and human rights of young people. Financial education aims to equip participants with key knowledge and skills to make good decisions regarding their money. This includes making decisions about using a variety of financial services, including savings and credit. The education can also help young people establish savings goals and a plan to meet their goals, so they become proactive about meeting needs rather than having to scramble when financial demands crop up. While there is some debate on the effectiveness of financial education in the adult population, there are a number of recent studies exploring the impact of financial education when combined with savings mechanisms for young people. Research findings from a recently completed randomized control trial (RCT) point to promising results in a group savings approach when accompanied by financial education. IPA partnered with the Church of Uganda, FINCA- Uganda, and Straight Talk Foundation to evaluate two interventions: a financial education curriculum and a youth-group savings account. 32 The financial education sessions were adapted from the Global Financial Education Program curriculum, which were originally developed by Freedom from Hunger and Microfinance Opportunities. 33 Preliminary findings from this evaluation indicate that both groups receiving the financial education, one with the group savings account and the other without it, improved their financial knowledge. The groups with only the savings account but no financial education did not show significant improvements, which points to the importance of integrating financial education to build the financial capability of young people. According to IPA, all three treatments slightly increased self-reported savings, though the increases were only statistically significant for the two financial education treatments. 34 Karlan has concluded that access to savings and financial education both improve savings behaviors. 35 Social Capital Social capital plays a critical role in promoting positive savings behaviors in a group setting. Group members build social capital in their groups as they participate in weekly meetings and abide by group rules, thereby increasing their credibility among group members. 36 Strengthened social capital has widely been cited as a potential impact of participation in community banking models. Global research indicates that social capital has improved repayment rates and increased savings 37 and empowered women. 38 While social capital can create positive social and financial outcomes, it is also an important input for successful groups. As summarized by Dunford, social capital helps build successful groups, and successful groups help build social capital. 39

12 Saving Together: Group-Based Approaches to Promote Youth Savings 12 Woolcock and Narayan define social capital as the norms and networks that enable people to act collectively, which requires drawing on the social ties within and outside of their communities. 40 Group-based youth savings approaches can build internal social ties by requiring youth to mutually agree upon and adhere to a set of norms that are monitored by the entire group. The agreed-upon social goal that is collectively worked on further builds their internal social cohesion. In turn, these internal social ties led to other positive effects. For example, studies in South Africa by the Population Council found that adolescent girls with more social connections were less vulnerable to risky sexual behaviors. 41 External social ties are built through the partnership among the participating youth and the organization that brings the groupbased savings service to them and provides support for the youth to set and achieve savings goals. For youth who become more economically productive by leveraging their savings for productive activities, they might enhance their social position within the community, thus further strengthening their external social ties. These internal and external ties enable the group and the organization to work together towards a common purpose, thereby nurturing members social capital, which can be leveraged to support each other to increase their savings and reach their individual savings goals. The Population Council piloted a group approach in Kenya and Uganda in which groups of girls meet on a weekly basis. While each girl in the group opens her own individual savings account, the intent of coming together is to support each other in saving and to participate in financial and health education. Research on the Uganda pilot evaluation compared girls who participated in the group and had a savings account with girls who only had the savings account but did not know they could join a group. 42 Although results from the evaluation did not find a significant difference in savings balances between girls in groups who had a savings account versus girls with a savings account only, the evaluation did find that girls in groups who had an account had greater social capital and stronger social networks, and were less likely to be sexually harassed or exploited. 43

13 13 Saving Together: Group-Based Approaches to Promote Youth Savings Social Pressure While the group structure and financial education help address many of the barriers to youth saving, peer groups can be leveraged to promote desired behaviors by addressing some psychological barriers. Pathak, Holmes and Zimmerman point out that peer dynamics can help youth overcome the status quo and the tendency to prefer immediate satisfaction vs longer-term rewards (i.e., hyperbolic discounting) through the effect of social pressure exerted by fellow community members. Youth-based savings approaches have a built-in commitment mechanism that leverages social pressure to compel youth into saving. As participants commit to their peers to abide by the group rules, including making a weekly savings, they are influenced by each other to sticking to their savings goals. Evidence from an RCT conducted in Chile found that selfhelp peer groups work much better in increasing savings than a substantial increase in the interest rate. 44 In the study, participants engaged in weekly meetings during which they voluntarily announced their progress in meeting their savings goals by showing a deposit slip to the group. Although the authors do not delve into the underlying psychological factors at play, the research implies that the peer group dynamics created a commitment mechanism that led participants to saving more than they would have without participating in the group. It is widely understood that susceptibility to peer influence increases during adolescence. 45 Although social pressure among young people often evokes negative connotations, such as gang activity or risky behaviors, strong affirmative social relationships, especially when properly supported and guided, can be very important in developing the positive behaviors of young people related to academic outcomes and well-being. 46 For example, because youth Savings Groups collectively decide the amounts to be saved, and youth can leave the group at any point, the peer pressure that is exerted is not likely to have negative impacts. If youth are unable to make their savings in any given week, they are charged a fine, which is also collectively agreed upon. Youth in Mali who are in Savings Groups report being supported and encouraged to participate in the groups by their parents who

14 Saving Together: Group-Based Approaches to Promote Youth Savings 14 often help them meet their weekly savings commitment. Because peer pressure is combined with parental support in group-based savings approaches for adolescents, it may play an even stronger and more lasting role than for other populations. The evidence presented here and summarized in Table 1 indicates that group-based approaches address many of the barriers faced by poor youth to access and accumulate savings. Table 4. How Group Savings Approaches Address Barriers to Youth Savings Barrier Group Savings Opportunity Small and Irregular Savings Amounts Limitations on Physical Access to Safe Places Savings Accounts Opening Requirements Psychological Biases: Status Quo Availability Bias Hyperbolic Discounting Sub-optimal Financial Behaviors The group structure of regular meetings centered around savings motivate young people to save regularly and accumulate larger amounts over time, creating a savings habit loop. In rural environments, youth Savings Groups make accessible a safe financial mechanism that is otherwise unavailable. In school settings, teachers or financial institution staff can receive deposits at the schools, thereby eliminating the physical access limitation. The group structure requires that only a few youth meet the identification requirements of formal savings accounts. Youth collectively can meet minimum opening balances and account fees that would be difficult to meet on their own. Social capital and social pressure influence youth to save every week to meet their savings goals. Regular group meetings serve as a reminder and commitment mechanism for poor youth to save. Youth experience immediate rewards when they see their savings grow and have access to loans. Financial education builds knowledge and skills to make good money-management decisions and establish savings goals. The group mechanism locks the funds over a period of time, discouraging members from spending their savings on unnecessary expenses. Limitations and Opportunities There are some valid questions that are still unanswered regarding group savings approaches, and some clear limitations that need further exploration. However, given advances in technology and the field of youth financial services, there are also significant opportunities emerging. Young People are very mobile. What happens when a young person decides to leave the group? In West African countries where migration is very common among young people, especially males, this is a very real possibility. In youth Savings Groups in Mali, siblings replace each other in groups, but this has taken place in a village setting, where everyone knows each other very well and often step in to help each other when needed. Since youth Savings Groups are still being evaluated, there is no certainty as to how long they will continue operating as a group if there are multiple departures. As Pathak 47 pointed out, there is the possibility of the habit loop being broken when the cue or reward is removed, so there is uncertainty about the continuation of savings by youth participating in Savings Groups if their groups cease to meet.

15 15 Saving Together: Group-Based Approaches to Promote Youth Savings However, evidence from adult Savings Groups in Mali indicates that 95 percent of groups over a six-year period continue to meet, save and borrow. 48 We can expect a similar trend in youth Savings Groups, though potentially fewer groups will continue if many members leave. On the other hand, Savings Groups have proven to be quite fluid and evolve over time, whereby members from one group join a new group when they move or when a new group opens up closer to their home. 49 We may see youth replicating groups as they become more mobile and transition into different phases of their lives. With formal group savings accounts, the process for a departing member can be clearly laid out by the financial institution and the group members themselves. However, departing members could destabilize the group dynamics and cohesion. In addition, participating youth who live in urban areas and have not started families may be more mobile, less socially connected to a specific group of youth, and their financial needs may be diverging, which could lead to a lack of social cohesion and potentially fewer positive savings behaviors. Can group-based savings for poor youth meet all of their financial needs? As confirmed by Portfolios of the Poor, the poor use a variety of financial instruments just as people of better financial means do so it is unlikely that one financial institution or program would meet all of the financial needs of poor youth. 50 Savings groups provide credit and savings in a convenient, flexible, reliable and structured manner. While non-formal youth Savings Groups may meet many of the financial needs of young people living in rural areas, they do not readily benefit from a relationship with a formal financial institution from which they can eventually access other financial products and services. However, group savings accounts can meet those needs for young people who live in or move to an urban area. An opportunity also exists for youth Savings Groups to link with formal financial institutions, especially with the increasing access to branchless banking and mobile money. One financial need that poor youth may face is the need to access their savings in an emergency. A potential disadvantage of grouped savings in a formal account is that the individual savings of any group member might not be readily accessible in an emergency; this would require agreement with the management committee and access to the financial institution to make a withdrawal. In addition, it is possible that only the two to three young people managing the account on behalf of the group gain critical skills for engaging with a financial institution, limiting the opportunity to build the capacity of all of the youth in the group. Are group settings risk-proof? While a group properly structured and supervised can have many checks and balances to protect the savings of young people, many other risks need to be considered. When savings are captured in schools, there is the risk that financial institution staff or even facilitating teachers face in transporting cash from the school to the financial institution. The cooperative staff in Ecuador participating in the AIM Youth initiative are insured in this situation, though the risk of theft or loss remains. Youth also face risks in carrying cash to school, to a group meeting or to a financial institution as there is no insurance available for them. There is also a risk of fraud by unscrupulous intermediaries who collect savings in the field, though this risk can be minimized by the checks and balances provided by technology, as with the use of Smartphones in Ecuador, both for the youth (who receive a receipt at the time of deposit using a mobile mini-printer) and the institution (that records the savings deposit into its system at the time of deposit via Smartphone). In

16 Saving Together: Group-Based Approaches to Promote Youth Savings 16 a group savings account context, even if the youth all know each other and multiple signatories are required to access the account, two account holders could commit fraud by withdrawing funds not approved by the entire group. Groups supervised by field staff could avoid this risk if the staff keeps a matching record system of the account funds. But such an approach might be expensive to sustain in the long run. While peer influence, when channeled adequately, can lead to the promotion of positive behaviors, it is possible that peer pressure can lead to negative and risky behaviors. For example, there is a risk of young people, especially adolescent girls, engaging in risky sexual behaviors if they feel pressured to meet their savings commitment. 51 Appropriate assessment tools need to be in place to monitor these risks, and adequate protection measures must be put in place to prevent them. Building the capability of field staff is important to effectively transfer new knowledge, support the group to build social capital, and ensure participating youth are protected from the potentially harmful effects of social pressure. Do group-based approaches work better for some youth than others? Group-based approaches may work best where youth are more socially connected and their financial needs are similar, which may often be the case for younger youth or youth who have married and started families. For example, group-based approaches work well in villages and schools because the youth are quite socially connected through village and school activities and are in very similar places in their lives financially, resulting in comparable financial needs. Groups that have mixed-gender composition and encourage female participation in the management committee could empower young women to step up to leadership positions. This is the case of the youth Savings Groups established by Plan International. But mixed groups also require appropriate monitoring systems to ensure young women are not overpowered by their male peers. In addition, formal financial services, such as group savings accounts, may not meet the needs of both females and males equally, especially in urban settings. While there are more females

17 17 Saving Together: Group-Based Approaches to Promote Youth Savings than males in non-formal youth Savings Groups in rural Mali, there is a significantly higher percentage of male (83%) owners of group savings accounts offered by Nyèsigiso, one of the credit union networks in Mali. According to discussions with the credit union staff, this might be due to the outreach strategy, as they are more easily able to find and encourage youth to join a group savings account in vocational training centers (ex. carpentry) that tend to have more males than females. In mixed-gender groups, there is also the risk that the groups could be dominated by the young men, marginalizing the young female participants. Data of mixed-gender youth Savings Groups and an internal evaluation of AIM Youth activities in both Ecuador and Mali have revealed no negative ramifications of having both genders represented in the groups. This may be due in part to the youth Savings Groups being supported by an adult woman in Mali, and the provision of services through schools in Ecuador. However, there is a need for more systematic research regarding the effects of mixed groups on participating girls. What role can technology play? As a result of youth s changing needs, it is important to consider how to build the financial capability of youth to use a broad range of financial services including formal financial institutions to meet their varied needs as they transition to different stages of their lives. Appropriate mobile-banking services can help address youth s changing needs and can help young people stay connected to a financial service even while relocating. However, as mentioned above, it is critical to build the financial capability of all of the youth in the group and not just those who are managing the account on behalf of the group. Forging partnerships among mobile operators, financial service providers and youth-serving organizations can help bring appropriate financial services to underserved youth populations. While mobile banking is still a nascent field, a recent market research study conducted in Benin and Burkina Faso indicates that 44.6 percent of the 139 youth who were interviewed own a cell phone, with another 35.2 percent having access to one. 52 Given the rapid pace of technology advancement, those percentages could increase markedly over the coming years, creating a significant opportunity for financial institutions to leverage technology and increase youth access to financial services. Another promising aspect of technology is text messaging, which has been shown to have a similar effect as peer pressure. 53 For youth who migrate, receiving text messages that reinforce key savings goals, combined with the access to mobile banking has the potential to completely transform youth financial services. Exploring creative ways of linking groups of youth minors as well as youth 18 years old to mobilebanking services can help address age barriers as we saw with the Nyèsigiso group savings account. Conclusions We hypothesized that group-based savings approaches can catalyze positive savings behaviors that continue into adulthood. More longitudinal research is required on savings services for youth as these approaches are relatively new and the evidence on long-term impact and sustainability is limited, but the findings by Freedom from Hunger in addition to the evidence by other organizations point to savings groups as a very promising approach to building financial capability for young people, especially for those who are economically vulnerable and have access to limited resources. Groupbased approaches build on the positive dynamics generated by the group structure, social capital and social pressure to increase savings. When financial education is added to this equation, young people are better equipped to create a lifelong savings habit, in addition to making smart money-management decisions for their future.