Accelerating Financial Capability Among Youth

Nudging New Thinking
June 25, 2011 |
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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. Our intended audience includes development practitioners and scholars focusing on global development, financial inclusion, and asset building. Very little work, to our knowledge, has been done on exploring the nexus between savings and habit formation. Though we acknowledge that the goals of financial capability vary and do not focus solely on forming savings habits, we believe it is an important outcome of financial capability. Additionally, while the proposed nudges have been administered, and in some cases tested, in the fields of public health, education, and financial services, they have not been extensively tested in the youth savings context. With that in mind, this paper is intended primarily to spur debate and provide ideas for further testing in the emerging field of youth savings.

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Herein lies the last mile problem to establishing sound, financial behaviors: the challenge of linking desire and ability (through financial education) and opportunity (through access to financial services) to behavioral outcomes.

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