Aug 22, 2012
Peter Kasprowicz of Credit Suisse and Elisabeth Rhyne of the Center for Financial Inclusion have recently completed an examination of global demographic trends and their implications for financial inclusion. What they found could change how we think about financial inclusion:
Blog #1 in a special series for the 2012 Youth Economic Opportunities Conference
September 11-13, 2012 Washington, DC
1. The youth bulge is ending for much of the developing world. It is axiomatic to think that in the developing world the population is very young and birthrates high. However, things have already changed for many of the world’s middle income countries. In Mexico, South Africa, and many other countries there will actually be fewer children by the end of the decade than there are today, while the number of elderly people, though still small, will grow rapidly. Only in the poorest countries, particularly in Africa, are children and youth still the fastest growing segments. For those countries with changing demographics, now is the time to begin focusing on the financial needs of older adults.
2. The “demographic window” challenges countries to use financial inclusion to make the most of a unique economic opportunity. In the many countries where birthrates have fallen but the population has not yet aged, the percentage of working age adults is higher now and in the next few decades than at any other time. These demographics set a country up for strong economic growth. BUT, countries must mobilize all their working age population to if they are to reap those benefits, including women, informals, and other excluded groups. Financial inclusion could make an important contribution to this effort.
3. Longer life expectancies require greater attention to savings and pensions. In the past, the elderly constituted a tiny percentage of the population of most developing countries, and their needs were often met informally. When more people live longer, a major need appears for long term savings and pensions to support them during their later years.
4. Financial needs change in important ways throughout the lifecycle and this provides opportunities for client segmentation. For example, young families are more likely to need access to credit for household set-up (consumer credit, housing finance)and to care for young children, while mature families face responsibilities to help launch their children in to adulthood (saving for weddings), care for aging parents (funeral insurance) , and prepare for their own old age. To date, microfinance institutions have paid relatively little attention to such changes in product design and marketing, and this could be a fruitful avenue for experimentation.
5. Because financial needs vary across the lifecycle, financial education must be a lifelong process. We know that financial education is most effective when it is directly relevant to a client’s life. Thus, messages on retirement savings will be lost on teenagers, but a 45-year old who has never thought about retirement savings may be urgently in need of some coaching. Financial education must be designed to follow changing needs across lifetimes.
Hear more about demographics and financial inclusion from Elisabeth Rhyne during the release of their publication, “Financial Inclusion and the Demographic Window,” at the 2012 Global Youth Economic Opportunities Conference. Register now!