The world of financial services is changing. With the rapid development of the financial system, children and youth are becoming more involved in financial decision making at a very early age. The current legislation of many countries allows them to use various financial instruments for payments, transfers and savings. A trend towards creating special youth financial products and services can also be found in developing countries, as they aim to increase access to financial services and boost financial inclusion rates among its populations.
This early exposure to financial products helps children learn about money matters and managing their personal finances, but it also brings risks, as the increased role of digital finance entails new risks related to the quality of products and services offered to young clients, who are particularly vulnerable group when it comes to safety and security issues. Young people currently face more complex financial environments, instruments and products than previous generations, underlining the importance of building financial capabilities and ensuring the necessary consumer protection alongside the proliferation of new financial products and services.
The joint CYFI & NAFI report "Children and Finance: Consumer Protection and Security of Savings and Payments" addresses the important issue of how to protect young people in financial markets. This becomes increasingly difficult as technology advances. The report analyses the potential risks and mitigation strategies of various products for different age groups, based on their characteristics and current industry practices. It defines potential international guidelines and recommendations on appropriate financial consumer protection and outlines the crucial role financial literacy plays in protecting and empowering young people in a world of fast‑pace financial innovation and widespread digitalisation.
Protecting young people online, and teaching them necessary skills to appropriately and safely use the variety of financial services available to them is one of the big challenges of the next few years. This report represents an important and informative initiative to different stakeholders working on the regulation of financial services and data protection, as well as highlights various industry practices that are of particular relevance to the financial services providers across the globe.
This is the second publication in the series of "Children and Finance", initiated by NAFI in 2015. The research summary of the first report on financial awareness of Russian youth can be found here.
Speaking with regard to consumer protection for children and youth, Sue Lewis, Chair of UK Financial Services Consumer Panel said:
The world of financial services is changing rapidly. Children as young as six have access to apps that let them manage their pocket money online, and they can use a pre-paid card for spending. Nearly one in five 8-14 year olds in the UK has a credit card on their parents' account. Many also have bank accounts. Early exposure to financial products helps children learn about money matters, but it also brings risks, as young people are often under pressure to spend, and spending is easy with 'contactless' payments and cards. It doesn't seem like real money, until the bills come in.
The NAFI & CYFI report tackles the important issue of how to protect children and young people. This will become more difficult as technology advances. 'Big data' offers possibilities for firms to target children and young people. Three-quarters of 12-15 year olds have a social media profile. They may not realise their data can be 'scraped', and used to promote products or sold on. Protecting young people online – and teaching them how to help protect themselves – is one of the big challenges of the next few years. This will require co-operation between financial services and data protection regulators, and for them to take account of the particular needs of children and young people.