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Opinions of Tuesday, 28 September 2021

Columnist: Foster Awintiti Akugri

Exploring the imperative of youth banking in Africa

Many banks in emerging markets, particularly in Africa, have abandoned the idea of youth banking and focused primarily on older people. On the contrary, however, available data from the World Bank indicate that over 60 per cent of Africa’s population fall under the age of 25, making Africa the youngest continent in the world. Back home in Ghana, Statista’s 2020 Ghana Population Age Structure, says that 54 per cent of the population fall under the age of 25.

This relatively young demography has become fodder for corporations around the world who are actively working to harness the vast opportunities that a young population offers. But as attractive as this population structure may be, available data suggest that banks on the African continent are yet to attract young people. Indeed, apart from the Middle East, Sub-Saharan Africa has the highest percentage of unbanked people under the age of 25.

The reasons for this situation may be numerous and varied. For some, banks find young people an uninviting market because of their limited income and the fact that a vast majority of them are yet to unlock their financial potentials. For others, banks are unable to keep up with the demands of millennials who are more likely to value convenience and mobility and expect digital solutions for everything. Hence the rather unhealthy over-concentration on older customers who have more money and are better immediate business prospects for banks. Whatever the reason, however, there is rhyme and reason to the imperative of banks concentrating on young people, and more especially for a continent that has well over half of its population under the age of 25.

First off, for any bank, the idea that young people do not have enough income and therefore should be left out of banking is a self-inflicting injury that will fester and become cancerous to the bank’s bottom-line in the future. This is for the simple reason that young people will not remain young forever and they will become the old people who will control and move wealth in the future. And when that time comes, the bank that stayed with them throughout the process is the bank that will manage their wealth and finances.

Also, literature is replete with facts and anecdotes about instance of poverty on the African continent. But even more importantly, our lived experiences make the situation of poverty on the continent apparent. As clichéd as this may sound, the youth and the opportunities available to them hold the key to escaping poverty on the continent. What they need to learn, which in a large part is the responsibility of banks, is how to achieve financial independence.

Including them early in issues of financial literacy and conscientizing them about the importance of financial independence and the best practices around personal finance management are key to shaping their thinking about financial independence. When young people are engaged early in their formative years by banks, their thinking patterns, relative to finance, are given direction and focus and helps them in their decision making when they become tomorrow’s businesspeople.

One critical thing that banks can do in helping young people escape the shackles of poverty is to help them understand planning and budgeting, understand the implications of prices and purchasing of things they want, understand how to differentiate between their needs and wants and create an expense plan towards that budget. Most importantly, it is helping them also understand risks and rewards, the consequences of carelessness and also saving for special items, the necessity for saving and the reward of this process. The risk and rewards of various financial products and the risk of default and its impacts on their interest rates, as well as their financial credibility to be able to access larger forms of credits or facilities in the future.

What remains critical is what banks need to do, in terms of creativity and innovation, to be able to attract these young people. Banks need to figure out the needs of young people at every stage of their development to be able to become relevant to them. At every age and stage comes some amount of financial responsibility depending on their needs, and creating timely and relevant content to help educate them during these various life stages are critical.

For instance, they can easily be categorized based on their transition through their formal educational processs. Pre-scholars less than five years old and then elementary scholars between six to nine years old, then 10 to 14 years old, where they are usually in junior high school, late teens, where they are usually in senior high school, and then the transition into tertiary level to become young adults and move out through their national service period which is a bridge stage between their financial and predictability, to becoming financially independent. At each of these stages, banks can have products that are tailored to the needs of young people. Other categorizations can also include young entrepreneurs and the youth in the informal sector.

Beyond these, banks need to ensure price sensitivity when it comes to youth banking and also make sure that the on boarding process for them are not as cumbersome as opening an actual full-fledged bank account, which would usually require some rigour and a lot of information to process. Moreover, the terms and conditions of owning the bank accounts must be simplified in lay people’s terms for a young person to understand without legal jargons being thrown at them.'

Fees such as transactional fees, account maintenance fees and minimum deposits requirements must be kept at their lowest level possible to attract young people.

Banks must recognize that as the incomes of today’s young people rise, they will become the main customers for banks in emerging markets. But what they want from banks is often very different from what is on offer. It is for this reason that banks must consider a special vehicle for the youth.