Financial Capability and Economic Resilience: What Global Youth Need Now

by Alison Coates, Global Head of Future Skills at HSBC, and Brandie Conforti, Global Chief Development Officer at JA Worldwide

For most people, life and circumstances have changed dramatically since early 2020. As the COVID-19 epidemic worsened, schools and businesses closed and those of us not on the front lines hunkered down, unsure when we’d be back to any sense of normality. We wondered what the “new normal” would be like for our families, our relationships, our careers and our finances.

Through it all we are having to learn new ways to be financially resilient. What steps can I take to help prepare for financial shocks? And, perhaps more importantly, how do we help young people — the generation that will likely be most impacted by the financial aspect of the current crisis — build their financial capability and economic resilience in the face of a potentially long-term downturn?

Growing Financial Capability

At JA (Junior Achievement) Worldwide and HSBC, we believe that one of the antidotes to the financial shocks that throw life into turmoil is financial capability. This goes beyond financial education and into the attitudes, knowledge, skills, and self-efficacy required to make, and follow through on, sound money-management decisions. Learning how to spend within means, and having the financial tools needed to put learning into action creates additional savings and forms a base from which to build economic resilience.

Why now?

The dire economic consequences of the COVID-19 pandemic have accelerated and deepened the need for effective money-management skills. In its June 2020 Global Economic Prospects report, the World Bank predicted a staggering 5.2% contraction in global GDP this year. The United Nations has warned that “income loss in developing countries could exceed $220 billion” as a result of this crisis. Millions of businesses around the world that closed temporarily might never reopen.

As with previous economic downturns, young people will be hit the hardest. Even if the economy improves over time, assuming high levels of unemployment continue into 2021, Gen Z may spend the first years of their work life competing with more experienced workers who were forced out of their jobs by the crisis, making it likely that they’ll experience higher rates of unemployment and under-employment than prior to the crisis.

According to the Consultative Group to Assist the Poor (CGAP), “the ability to stabilize consumption (resilience) and the ability to invest in their futures (opportunities)” creates a virtuous cycle that enables people to endure financial shocks.

The case for resilience

Resilience is the goal of financial capability, helping families and communities endure when uncertainty strikes. “Resilience” doesn’t mean bad situations won’t arise, or that families and communities won’t be stretched. Instead, resilience refers to an elasticity, a capacity to recover and bounce back from difficulties. Individuals who are financially resilient have actively chosen to take steps to prepare for circumstances which could have a severe negative impact on income or assets.

For Guy Stuart, Ph.D., Executive Director of Microfinance Opportunities, “There are three parts to resilience: prevent, withstand, recover. In a global pandemic, we can do our part to prevent the spread of the virus, but we can do little to prevent its global economic impact. But a financially capable person is better able to withstand that economic impact because she has savings and/or because she is able to talk with members of her family about money shortages and plan together how to deal with them. And she is better able to recover, because she has the knowledge and skills to make the right economic choices as the economy opens up.”

Building resilience

The good news is that we are in an unprecedented age of access to tools and information, many of which are at the fingertips of young people. So how can these be best leveraged to support youth as they build resilience?

Mobile and smartphones have become a delivery mechanism of choice. We know we cannot only teach key financial concepts but must also engage youth in developing positive financial behaviors and attitudes, using a method which is familiar and fun to them. Over the last three years, a number of apps have been developed to support young people to learn financial concepts. Some apps allow young people to be paid by their parents for chores they complete, with money going into an account that parents can help to manage, teaching savings goals along the way. Others provide games to help build financial knowledge, through options like pretend game shows or grocery-shopping sprees to find the best deal. Still others give youth the opportunity to buy fractional shares of stock in their favorite companies, like Disney or Epic Games, and get their first taste of investing. These apps allow young people to build their financial knowledge in a safe space and understand how their actions influence financial outcomes.

An app alone isn’t enough, though. Money can often be a taboo subject, but parents and other adults play an important role in shaping young people’s attitudes towards money. Conversations about how saving up to buy something, the financial mistakes and lessons learned from them, and the process of shopping around to find the best deal all help young people to understand their own financial self-efficacy. Albert Bandura, a pioneer in researching self-efficacy, identified it as “the belief in one’s ability to influence events that effect one’s life and control over the way these events are experienced.” In other words, the belief that a situation will resolve positively through a series of actions actually leads to that desired positive outcome. Dr. Stuart adds, “Self-efficacy in relation to money management is key to economic resilience. You say to yourself, ‘I can do this’ as you make the tough financial decisions that are going to see you through the crisis you’re facing.”

These learnings are complemented by providing a young person with a place to put money they may earn or be given on milestones like birthdays. According to the International Journal of Consumer Studies, having a savings account is linked to greater financial stability, greater equality, and, ultimately, greater financial capability. The process of setting an account up can also be a confidence-building experience for a young person.

How we are playing a role

After working together for a number of years to deliver in person financial education, HSBC and JA are now embarking on a new global initiative to introduce youth ages 12–16 to the skills they need to be financial capable. Utilizing best practices in interventions for financial capability, we’re creating a mobile app that incorporates teachable moments, learning by doing, gamification, and peer-to-peer learning that will help today’s young people become more financially capable. In 2021, the app initially will be deployed for classroom use, and then will be released for free in the Google Play and Apple App stores.

The app will be complemented by classroom learning sessions for those accessing the app through their school’s participation in JA programming, allowing participating students to have money-management conversations with their peers, their teacher, and the adult volunteer delivering the program.

Through this project, we are reaching youth at an age when their knowledge, attitudes, and behaviors can be shaped in a way that will benefit them positively for the rest of their lives. We are doing this because we believe that financial capability and the resulting economic resilience can — and must — be taught to every one of the planet’s two billion young people. By partnering together, we intend to build a financially capable generation, better prepared for whatever comes.