Creating Creatures of Habit: Nudging Saving in Youth

How can low-income youth be encouraged to save?
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This paper discusses how practitioners and policy makers can help youth to form a savings habit by taking advantage of developmental touch points in their lifecycle. It explores how developing a savings habit can help overcome the psychological challenges that youth from poor families face. The paper discusses how practicing cognitive skills such as self-control and planning help youth to save and lead to multiplier effects later in life. It also identifies how policy and program level interventions when delivered during transitional phases in the youth lifecycle can maximize the impact of forming a savings-habit. It states that policy makers and practitioners can:

  • Explore the role that habit loops of cues, routines, and rewards can play in nudging sound financial behavior;
  • Leverage the different stages of youth lifecycle, namely early childhood, middle childhood, and adolescence to create habit loops;
  • Use rewards such as small prizes, seed accounts, and matched savings to help youth continue a habit loop;
  • Create a stable environment to reduce pressures on youth and facilitate wealth accumulation.