Financial inclusion – where individuals and businesses can access affordable financial products and services that meet their needs – has been identified as an enabler for seven of the 17 United Nations Sustainable Development Goals. In facilitating full participation in economic activities, financial inclusion drives economic stability and sustainable growth. With many countries having large populations of young adults, it stands to reason that ensuring financial inclusion for such individuals will have a positive impact on societal and economic development across the globe.
Benefits of financial inclusion
Boosting financial inclusion for all sectors of society, including young adults, has far-reaching impact. At the simplest level, when people have access to banking services, they can save and invest, driving capital formation which, in turn, boosts domestic investments and helps fuel economic growth. From a business perspective, financial inclusion enables entrepreneurs and small businesses to access credit, manage risks, and scale their operations, creating jobs and furthering innovation. Societally, making financial products such as loans, savings accounts, and insurance more accessible helps those on a low income manage financial emergencies and reduce vulnerability to financial shocks. And from an equity perspective, studies show that when women, the unbanked, the underbanked and the marginalized are financially included, it can have a tremendous impact on economic growth and development.
The wider impact
While young adults may not necessarily be strictly marginalized, they can be considered financially excluded in many ways. In developing countries, a lack of employment opportunities and limited options to generate income can stifle their economic potential. While many opt for self-employment, their earning capability is held back by a lack of financing solutions that would enable them to fully invest in their business and increase their income.
In both developing and developed countries, financial products and services that could help young adults participate fully in the economy are often out of reach due to governing frameworks and societal biases favoring older, more stable population segments. They could also be inaccessible due to cost, with employment opportunities for the young tending to be at lower salaries. Additionally, financial instability can force younger people to accept employment on less favorable terms such as temporary contracts, or those with zero guaranteed hours.
A lack of financial education leading to poor credit scores can also affect the future potential to enjoy full financial inclusion, with such customers being forced to pay more for the financial services they need due to the perceived risk being greater to the financial institutions. It is imperative we enable financial literacy – from understanding the difference between debit and credit cards to saving and investing wisely – in order to truly facilitate financial inclusion for young people and help them avoid financial exclusion due to a poor credit score. Solutions such as Mashreq NEONXT enable young people to learn how to manage money effectively from a young age, thereby developing financial literacy and setting them up for a strong financial future where they are able to participate fully in the economy.
The role of technology and innovation
With Gen Z being the first generation to experience digitalization from birth, we can justifiably say they are the most digitally savvy generation yet. And here is our opportunity to reach them, in order to ensure their financial inclusion. Advancements in technology and innovation have opened up a new world of financial solutions, with banks and fintechs working hand-in-hand to ensure the widest availability of financial products and services possible.
Banks themselves are utilizing the latest state-of-the-art, cutting-edge technology to increase digitalization, enhance the customer experience and develop more sophisticated ways in which young people can access financial products and services. Solutions such as open banking and embedded finance, mobile wallets, micro-lending, and peer-to-peer payments are making online transactions quicker, easier and more efficient than previously imagined, appealing to young, tech savvy populations the world over and making finance more accessible than ever before.
Looking to the future
With young adults being the largest and fastest growing segment of the population in many countries, financial institutions and all associated stakeholders need to ensure they are financially included in order to drive economic growth and have positive impact. With this segment of the population being the most tech savvy, it is also prudent to make full use of the most advanced technology and innovation to tailor products, services and solutions to their needs. Banks and fintechs can enable far greater financial inclusion for young people by leveraging each other’s strengths; fintechs can benefit from banks’ infrastructure, expertise and reputation, while banks can take advantage of fintechs’ innovative solutions. Clearly, collaboration is key to ensuring financial inclusion for young people and driving economic development.
Fernando Morillo is head of Retail Banking Group, Mashreq.
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