This paper argues that common definitions of financial capability understate the role of psychological barriers to establishing sound financial behaviors, namely savings habits. Drawing on insights from psychology and behavioral economics, we explore these missing psychological variables in the standard financial capability equation and suggest mechanisms, or nudges, to overcome those barriers to accelerate financial capability among low-income youth.

There is an increasing, and arguably inevitable, overlap between the financial inclusion and social protection fields. The success of conditional cash transfers (CCTs)—antipoverty social policy programs that direct funds toward qualified households or individuals based on a conditional behavior, such as children’s school attendance—has resulted in substantial investment and experimentation.

Research and experience to date suggest that savings accounts for low-income youth may be a high-leverage tool to achieve both youth development and financial inclusion objectives. This potential has led a variety of stakeholders to invest in youth savings products, programs, policies around the world. However, there is limited evidence of whether these initiatives are fulfilling either type of development potential, or what types of youth savings initiatives might potentially achieve both.

Child Development Accounts (CDAs) as a matter of policy have existed for some time, though predominantly in developed countries. While there are at least a few government social programs with CDA components in the developing world, such policies have yet to gain significant traction. This paper finds that despite this lack of policy movement, CDAs do exist in developing countries in a variety of forms and delivered by a diverse group of institutions.