Accelerating Financial Capability Among Youth: Nudging New Thinking

This paper examines how to accelerate financial capability among low-income youth from a formal savings perspective. It draws on insights from psychology and behavioral economics to explore missing psychological variables in the standard financial capability equation, which prevent low-income youth from saving in a formal financial institution. It concludes with additional ideas for research. The paper states that forming a savings habit would increase the financial capability of low-income youth. Saving regularly can allow low-income youth to build assets into adulthood, cushion against livelihood shocks, smooth consumption, and invest in future wellbeing. Certain mechanisms or nudges can overcome psychological barriers, prompt positive savings behavior, and accelerate financial capability. The paper examines:

• Last mile problem to establishing financial behaviors;
• How starting young can help counteract psychological barriers to saving in financial institutions later in life;
• Biases that contribute to the last mile problem of behavior change;
• Nudges from a range of fields and how they might promote positive savings habits among youth;
• External challenges related to enhancing youth financial capability.