aging and financial inclusion: an opportunity

8/9/2019 Aging and Financial Inclusion: An Opportunity

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Aging and FinancialInclusion: An Opportunity

A joint publication of HelpAge Internationaland the Center for Financial Inclusion at Accion

February 2015


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CENTER FOR FINANCIAL INCLUSION

Table of Contents

Foreword 2

1. What Is Older Age and Why Does it Matter? 3Income Strategies in Later Life 5

Financial Services and Aging 6

2. Pensions and Savings 7Pension Coverage at the Base of the Pyramid 7Social Pensions 8Can Lower Income People Save for Old Age? 11Connecting Pensions and Financial Services 13Creating a Savings Culture 14

3. Supporting Self-Employment, Family Support, and Other Coping Strategies 15Employment and Self-Employment 15Family and Social Networks 17Financial Management — Day-to-Day and in Emergencies 18

4. Removing Age-Based Barriers to Financial Inclusion 22Prioritizing Financial Capability 23Earning Trust 24

5. Priority Actions 25

Spotlight on Colombia 27Profile of Aging in Colombia 27Income Strategies in Older Age in Colombia 27Interaction with Financial Services 30

ANNEX 1. Methodology for the Issue Report 33

ANNEX 2. Online Supply-Side Questionnaire 34


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AGING AND FINANC IAL INCLUSION: AN OPPORTUNITY

Table of Figures

FIGURE 1. World Population Pyramids (2010, 2020, 2040) 3

FIGURE 2. Percent of the Population Over Age 60 (2000, 2020, 2040) 4

FIGURE 3. Percent of Older People above Statutory Retirement Age

Receiving a Pension (Latest Available Year) 8

FIGURE 4. Percent of the Labor Force Ages 15–64 Actively Contributingto a Pension Scheme (Latest Available Year) 9

FIGURE 5. Increase in Social Pension Schemes (1890-present) 10

FIGURE 6. Social Pension Benefit as a Percent of GDP Per Capita(Latest Available Year) 10

FIGURE 7. A Savings Reminder Built into Customer Engagement 14

FIGURE 8. Percent of Older People Who Worked in thePrevious Week, Thailand (2011) 15

FIGURE 9. Gap in Years Between Institution-Reported Age Cap

and Life Expectancy (2014) 17

FIGURE 10. Expenditures of Older People, Bolivia (2013) 19

FIGURE 11. Account Penetration by Region and Age Group (2011) 20

FIGURE 12. Percent of Population Ages 60 Years and Older,Colombia (2013–2040) 27

FIGURE 13. Strategies to Cover Old-Age Expenses, Colombia (2013) 28

FIGURE 14. Pension Coverage Rates for Population Ages 65 and Older,by Household Income per Capita, Columbia (2009) 29

FIGURE 15. Pension Coverage rates for Employed Population,by Household Income per Capita, Columbia (2009) 29

FIGURE 16. Percent of Old-Age Expenses Among People Under Age 60,by Employment, Colombia (2013) 32

Acknowledgments

We wish to thank all those whoparticipated in our research —the policymakers, providers,and support organizations whoresponded to our online survey of

the financial inclusion community,and the older people acrossColombia who participated in focusgroups about the financial servicesthey use. We are also grateful forthe input and time given by thosewho attended our roundtable inColombia on aging and financialinclusion and for our moderator atthat event who brought a diversityof perspectives together. Theircomments contributed significantlyto narrowing the focus of thisissue paper with an understandingof what is possible in regards tonext steps. We acknowledge andare grateful for the support andenthusiasm of our colleagueswho helped to make this projecta success within both of ourorganizations. Finally, thisproject and its outcomes wouldnot be possible if not for thegenerous financial support fromthe MetLife Foundation.

Photo credit:Front cover John Rae for Accion


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CENTER FOR FINANCIAL INCLUSION2

services in older age and throughout theaging process, a relatively neglected area ofstudy. The report draws on literature fromacross the globe, but largely focuses on middleincome countries, in particular Latin America,and includes a spotlight on Colombia. The

report incorporates information gatheredfrom two direct sources: first, an online pollof experts from the financial services sectorand second, focus group research with olderpeople in Colombia. The Colombia spotlightillustrates many of the points made in themain body of the report. It also provides aconsumer perspective, especially from lowerincome people, on the extent to which olderpeople in Colombia currently interact withformal financial services and know about theservices on offer. While the Colombia casestudy contributes important insights to thisdebate, it is important to remember that everycontext is different.

This report charges policymakers andproviders to consider older people as anincreasingly important market segmentwhose needs are differentiated from those ofyounger adults. It suggests that, in keepingwith advocacy that HelpAge has carried out formany years, social pensions can and shouldprovide an essential floor for income duringlater life. Yet it recognizes that nearly all olderpeople will need to put in place varied income

strategies for themselves beyond pensions,and for that private financial services are anessential part of the solution.

Incomes for older people are unpredictableand varied, and a variety of financial servicescould support the strategies older peopleemploy to make ends meet. Financial servicesproviders, however, are cautious about theirengagement with older people because of

concerns about financial capability, incomeinstability, and physiological issues. At thesame time, social pensions, while quicklygrowing in reach, are currently inadequate tomeet the needs of older people. These realitiesare challenging, but they also signal marketopportunities that the financial sector hasthe potential to address. Effective solutionswill be found in cooperation between thepublic and private sector, in creative designof financial services, in early interventions toencourage participation in long-term savingand contributory pensions, and in a continuedcommitment to knowledge-sharing betweenthe financial services sector, older persons’associations, and support organizations.

This report presents the findings of the jointproject on aging and financial inclusion fromthe Center for Financial Inclusion at Accion(CFI) and HelpAge International with supportfrom the MetLife Foundation. The project wasprompted by the demographic review carriedout as part of CFI’s Financial Inclusion 2020project, which drew attention to the rapidlyaging global population and to the immediate

challenges aging poses, particularly in middleincome countries. CFI joined forces withHelpAge because of HelpAge’s deep knowledgeabout global aging issues. We intend for thisproject to be useful for those who work on theissue of aging, for financial services providers,for policymakers and other governmentstakeholders, and for support organizations.

The purpose of this report is to highlight thebarriers and opportunities related to financial

Foreword

Sonja E. Kelly, Elisabeth RhyneCenter for Financial Inclusion at Accion

Alice Livingstone, Eppu Mikkonen-Jeanneret,Pilar Contreras, Rosario BaptistaHelpAge International


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FIGURE 1

World Population Pyramids (2010, 2020, 2040)

Source United Nations, World Population Prospects 2012 (New York: United Nations, 2012).

2010 2020 2040

100+

95–99

90–94

85–89

80–84

75–79

70–74

65–69

60–64

55–59

50–54

45–49

40–45

35–39

30–34

25–29

20–24

15–19

10–14

5–9

0– 4

0 100 200 300 400

Females in millions

400 300 200 100 0

Males in millions

Age


Aging is an important dimension of globalchange, and not only for wealthy countries.Increasingly, middle income countries arefacing rapidly aging populations, and in thenear future aging will be an issue for lowerincome countries as well. Within 15 years,

there will be 1.3 billion people over age 60 inthe world, constituting 13 percent of the globalpopulation. Over 60 percent of these olderwomen and men will live in low and middleincome countries. In fact, even by 2020 thenumber of people over the age of 65 will havesurpassed the number of people under age 5.1

As fertility drops and lifespans lengthen,the global population pyramid changes shape.Most of the growth in world population duringthe next three decades will occur amongmiddle-aged and older adults (see Figure 1).2

Aging is advancing fast in developingcountries, even in countries with largepopulations of young people (see Figure 2).For example, while it took the U.K. 80 yearsto increase the 60+ population from 7 to 20percent of the total, the same proportionalshift will take place in Thailand in justover 30 years. This pace of change requiresimmediate responses in terms of culture,social structure, economics, and policy. For theglobal community it is not an option to leaveunused the talent and skills of people aboveany arbitrary age. Sustainable development

for a rapidly changing population profilerequires visionary courage and bold changesin mindsets. Population aging also means thatthe consumer market is changing rapidly, andbusinesses will need to adapt. In the words ofAlbert Einstein, “We cannot solve our problemswith the same thinking we used when wecreated them.”

What Is Older Age and

Why Does it Matter?


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FIGURE 2

Percent of the Population Over Age 60 (2000, 2020, 2040)


35

30

25

20

15

10

5

0 AFRICA LATIN

AMERICA/CARIBBEAN

ASIA US/CANADA

EUROPE AUSTRALIA/OCEANIA

WORLD MOREDEVELOPED

LESSDEVELOPED

LEASTDEVELOPED

204020202000Percent


changing roles we occupy in our familiesand societies and our ability to actively engagein society. As life expectancy increases globallyand every cohort of older people is fitter,better educated, and healthier than the

previous one, the idea of a homogenous massof ‘older people’ becomes not only irrelevantbut harmful if it provokes homogenousresponses. Age is not a proxy for health,cognitive function, or disability. Aging ismultidimensional and therefore highlycontext- and even individual-specific.

Gender is a significant determinant ofwell-being in old age. Women face greaterchallenges in older age than men. Part of thisis due to longevity. Women, on average, livefive years longer than men,5 and the globalpopulation of older people is significantly

skewed toward women. They must maintaintheir income streams for a longer time, andtheir vulnerability increases with age. They

But who is old? The answer differs byculture, context, and individual. For instance,even though life expectancy is only sevenyears less in China than in France, theChinese believe that old age typically begins

at age 50, while the French say it is age 71.3 Inaddition, there could be physical and mentaldifferentiation between someone at 50 andat 80.4 And two people of the same age in thesame society could have very different profilesdepending, for example, on their educationalattainment. The UN has set a chronological ageof 60, while the World Health Organization sets50 as the beginning of old age. Definitions ofold age matter because they determine not onlysocietal expectations, but also the entitlementsprovided by governments and others toindividuals in older age.

There are no inevitable biological markersthat link to chronological age. In daily life, weoften define old age not by years but by the


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are much less likely to be employed in theformal sector and are therefore less likely tohave a pension or formal work later in life.In some contexts, the current generation ofolder women is less literate than older men.6

In Mexico and Honduras, for example, literacyrates are between 8 and 6 percent lower forwomen 65 years and older than for men inthat age bracket. In Guatemala, the gap is23 percent.7 Lack of basic literacy affects theability to earn an income and access services,including financial ones.

Because they often marry men older thanthemselves and have longer average lifespans,many women spend their older years aswidows.8 In countries without equal land rightsa woman may not be guaranteed her propertywhen her husband dies. Older women often

continue as family caregivers, whether full-or part-time. Such unpaid work is essentialto families and important in societies; forexample, it often enables younger women toaccess labor markets.

Income Strategies in Later LifeRapid population aging creates challengesand opportunities that demand a responsefrom both public and private actors. Effectiveresponses will be grounded in a deepunderstanding of the economic, social, andeven physiological status of older people. Inthis report, we lay out a portrait of the incomestrategies people in developing countries useto sustain themselves in later life. We focus onthe population at the base of the pyramid — thepoor and near-poor — though much of what wereport may apply to the lower stratum of themiddle class as well.

In high income economies the traditionalimage of older age involves a comfortableretirement from working life, sustainedby a decent income from pension savingsaccumulated over the life course. In such

economies, this picture is accurate fora substantial fraction of the population.However, for most people in low and middleincome countries, especially at the base ofthe pyramid, comfortable, leisured retirementis not a realistic picture. Multiple sources ofsustenance include pensions, family, friends,

employment, small business, assets, andsavings. Some people rely mainly on one ofthese sources, but many draw upon severalsources to secure an income stream that isoften varied and unpredictable. Many of thesesources are undocumented and informal.

In its previous work, HelpAge has useda concept of ‘pathways to income security’consisting of four broad segments:

•Broader social protection and public welfare •Pensions (public, private, and hybrid)

•Work and employment

•Informal family and kinship supportWe continue to use these breakdowns, and weadd savings and assets as relevant pieces of theincome puzzle.

Although income, alongside good healthand the ability to participate in society, isconsistently identified as central to well-beingin older age,9 there are few globally comparabledata sources detailing income in older age. Lackof data means that the situation of older peopleis often invisible or misunderstood. Significant

progress has been made in filling this evidencegap, but much of it focuses on one sourceat a time. For example, pension coverageis monitored through work undertaken byHelpAge, the International Labor Organization,and the World Bank.10 A recent initiative, theNational Transfer Accounts research program,

Gender is a significant determinant of well-being in old age. Women must maintaintheir income streams for a longer time, and

their vulnerability increases with age. Theyare much less likely to be employed in theformal sector and are therefore less likelyto have a pension or formal work later in life.


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the international movement of people, andtechnology and innovation. While individualsmay plan for a secure income in older age, theyare often at the mercy of greater forces. As aresult, people may find themselves relying

on income strategies they did not anticipateusing, which may also mean that they are lesswell-off than they expected. Thus, in Colombiawhen people under age 60 were asked howthey plan to subsist in their later years, themost frequent responses were own savings andwork. However, when asked about the sourcesthey actually use, those over age 60 mentionedfamily and government pensions most often.14

Financial Services and AgingSocial security systems play a major role insustaining people in later life. However, in

many low and middle income countries, thesesystems are currently far from adequate, andsocial security will always be one amongmultiple strategies. This is where financialservices can help.

A major role of financial services in agingis to facilitate the basic income strategiesthat people use to survive, including thosestrategies that originate in younger yearsto prepare people for later life. Financialservices also play an important role inmanaging day-to-day variations in incomeand expenses, including emergencies, whichdiffer somewhat for older people then theydo for younger people.

If income strategies in later life involvemultiple sources, so too must financial servicesprovide multiple solutions — for incomemanagement, self-employment and business,facilitation of payments between familyand friends, and emergencies. The financialservices community can address the marketneeds of older people with access to credit,savings, insurance, and payment services.Older people today have financial services

needs that remain unmet, and as more peoplereach higher age brackets, the market for suchservices will grow to substantial proportions.

is beginning to provide insights into howdifferent generations produce, consume,share resources, and save for their future in anumber of countries.

Data on employment and self-employment

disaggregated by age are less readily available.For example, Labor Force Surveys collectdata for all people of so-called ‘working age’(based on country definitions), but data arerarely analyzed for people ages 65 and older.A variety of other national surveys, such ashousehold income and expenditure surveysand agricultural censuses, collect informationabout the income, employment, and landand property ownership of householdmembers, but data are often not disaggregatedby age and are further limited by the largeinformal economies in many low and middle

income countries that pose a challengefor data collection.

Insights into income strategies are availablefrom some studies, although without cross-country standardization of methods anddefinitions, generalizations remain tentative.World Bank/Government of Colombia researchin Colombia revealed that among people ages60 and older, 22 percent relied primarily ongovernment pensions, 21 percent on family andfriends, 12 percent on non-financial assets, and11 percent on work.11 Continued work may beparticularly concentrated among the ‘youngerold,’ or non-standardized studies may simplyreturn different results; research results fromExternado University, Colombia, found thatalmost 50 percent of people between ages 60 to69 continue to work.12 Tanzanian national datashow family and remittances as the primarysource of income for older people (66 percent)with work second (35 percent), and pensions adistant third (5 percent — multiple responseswere allowed).13

For many of today’s cohort of older people,the speed of change in the last 30 years

creates an increasing gap between expectationand reality, particularly with increasinglyconnected nation states and financial markets,


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Pension Coverage atthe Base of the PyramidWe begin our investigation with pensions,based on the premise that a pension thatsupplies some level of reliable income should beavailable to all people. Economist Nicholas Barr

identifies three common goals for pensions: “toprevent the individual from being impoverishedin old age; to allow the individual to redistributeincome from their younger self to their olderself; and to act as a form of insurance againstthe individual outliving their life expectancy.”15 For the vast majority of lower income peoplein developing countries, especially those in theinformal sector, pensions are not available orinsufficient to meet these goals.

Pensions have become much morewidespread around the world in recentdecades, including both traditional contributorypensions (public and private) and non-contributory social pensions (governmentpensions provided to people who did notpay in). However, coverage is unequal acrossregions. While nearly 90 percent of older peopleabove statutory retirement age in developedeconomies receive some sort of pension, inLatin America and the Caribbean the figureis 56 percent, for Asia and the Pacific it is47 percent, and in Africa it is 21 percent (seeFigure 3).16 Population coverage is only part ofthe story however. Pension adequacy matters,

too. For all but the wealthy, pension income isgenerally insufficient to meet all expenditureneeds in older age. In Colombia, for example,where less than one-quarter of people overage 65 receive a pension,17 the majority of olderpeople who continue working do so out offinancial necessity.18

When pensions were first designed125 years ago, the models rested on highparticipation rates in formal employment,and therefore high participation in the taxsystem. It was expected that economicdevelopment would pull the majority of

workers into the formal economy, and systemswere designed around formal employment.However, the informal economy has not goneaway. Almost all agricultural workers andan estimated 51 percent of non-agriculturalworkers in Latin America are informallyemployed.19 In East and Southeast Asia, theregional average is 65 percent, and it is as highas 73 percent in Indonesia.20

As a result, major portions of the laborforce in countries with large informalpopulations make no contributions to apension scheme (see Figure 4). For informalworkers and the self-employed whoseincomes are often irregular, unpredictable,and small, it is difficult to make the fixed,regular payments pension systems require.And it is not surprising to learn that manypeople do not know the procedures for makingsuch contributions directly even when theyexist. On the supply side, informality isalso a considerable practical challenge topayment collection and the administration ofa contributory scheme, resulting in high costsrelative to the size of contributions.

During demand-side research in MexicoCity and Lima, Peru, close to half of workerswho were not contributing to a formal pensionscheme said it was because they had too littlemoney or because their earnings were tooirregular.21 In a survey of informal workersin Tajikistan and Kyrgyzstan, 69 percent said

Pensions and Savings


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FIGURE 3

Percent of Older People above Statutory Retirement Age Receiving a Pension (Latest Available Year)

Source International Labor Organization, Share of population above the statutory pensionable age receiving an old-age pension (Geneva: International LaborOrganization, 2014).

51–90%

91% and over

< 20%

21–50%


they do not pay into their countries’ socialinsurance funds.22 Past episodes of persistenthigh inflation and hyperinflation, particularlyin Latin America, have also contributed toa culture that does not view pensions as animportant old age strategy.

Social PensionsTo provide some income for those withoutyears of formal employment, governments

began to implement non-contributory, or ‘socialpensions.’ These schemes were originallydesigned as welfare, using general governmentrevenues, for what was assumed to be a smallminority unlikely to join contributory pensionschemes. They typically targeted the very poor.However, in recognition of the persistence ofthe informal economy, poverty, and growinginequality, some social pension schemeshave been expanded to cover more informal

workers. Others have not been reformed,leaving a large group in the middle who arenot poor enough to qualify for social assistancenor wealthy enough (or suitably employed) tocontribute to a formal pension scheme.

For those who receive them, social pensionsplay an important role in providing a basicand predictable income in older age. They maymake the difference between absolute penuryand basic survival. HelpAge has long been

an advocate for countries extending socialpensions to more of their populations, andwe continue that clarion call in this report.The extension of social pensions as part of a‘social protection floor’ has gained significantrecognition from the G20, EU, IMF, WorldBank, and OECD, as well as in the Post-2015Development Agenda.23 A social protectionfloor describes a system that guaranteesincome security and access to basic services


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FIGURE 4

Percent of the Labor Force Ages 15–64 Actively Contributing to a Pension Scheme (Latest Available Year)

Source International Labor Organization, Social Pensions Database (Geneva: International Labor Organization, 2014).

70

60

50

40

30

20

10

0MEXICOECUADOR COSTA RICACOLOMBIACHILEBRAZILBOLIVIA ARGENTINA

FemaleMaleTotalPercent contributing


across the life course, based on the principle ofuniversality of protection.24 In June 2012 over150 countries endorsed a new recommendationon social protection floors at the InternationalLabor Conference in Geneva.

Many governments are prioritizing non-contributory pension schemes for people whocannot contribute to a pension scheme as thefastest and simplest way to provide at least aminimum level of support to more people.25 The number of governments introducingtax-financed social pensions de-linked froman individual’s work history has doubled overthe last 20 years (see Figure 5).26 Much of the

success of pension systems that have achievedhigher coverage has come from efforts toinclude low-income and informal workersinto the pension system (both through non-contributory schemes or initiatives such assavings matches), rather than expecting theseworkers to move to formal employment.

Nevertheless, since the benefit level ofsocial pensions is often too small to secure anadequate standard of living, most people need

“Social pensions are now seen by all theprinciple actors as an integral part ofold-age income security in all countries.”

HelpAge International, Achieving Income Security in Old Age


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FIGURE 5

Increase in Social Pension Schemes (1890-present)

Source HelpAge International, Social Pensions Database (London: HelpAge, 2014).

18901900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020

IcelandDenmark

New Zealand

UK Ireland

USA Guyana Cook Islands Seychelles Samoa

Antigua and Barbuda

Thailand Argentina

SpainCyprusNepalIndia

BotswanaBolivia

Bangladesh

MoldovaSlovenia

JamaicaKosovo

BelizeKiribati

Germany MexicoEcuador ColombiaLesotho

Vietnam

SwazilandGuatemalaNauru

GeorgiaIndonesiaCape VerdeKenya

South KoreaTimor-Leste

St Vincent and the Grenadines

Maldives

NigeriaPeruPhilippines

VenezuelaFiji

China

El Salvador

PanamaPapua New Guinea

Paraguay

MozambiqueGreeceMalaysia

Brunei

Turkey France

Brazil Italy Suriname

ChileCosta Rica

MaltaNetherlands

Norway MauritiusBarbados Namibia

FinlandTrinidad and TobagoSweden

Canada

South AfricaUruguay

FIGURE 6

Social Pension Benefit as a Percent of GDP per Capita (Latest Available Year)

Source HelpAge International, Social Pensions Database (London: HelpAge, 2014).

35

30

25

20

15

10

5

0 C H I N A

I N D I A

T H A I L A N D

B A N G L A D E S H

V I E T N A M

P H I L I P P I N E S

M E X I C O

I N D O N E S I A

N O R W A Y

U N I T E D S T A T E S

N I G E R I A

S O U T H A F R I C A

U N I T E D K I N G D O M

B R A Z I L

N E W

Z E A L A N D

Benefit as a percent of GDP per capita



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AGING AND FINANC IAL INCLUSION: AN OPPORTUNITY 1

multiple strategies for maintaining income inolder age. The adequacy of pension benefitsis highly varied across countries (see Figure 6),and there is no global consensus on anadequate benefit level. The definition of an

adequate benefit level is nationally determinedand based on social, cultural, and economicissues, as well as the objective of the scheme.Many countries with higher pension benefitlevels (such as New Zealand) started out witha minimum benefit level and over time builta system to maintain a certain standard ofliving using integrated contributory and non-contributory pension pillars.

Can Lower Income PeopleSave for Old Age?Given that coverage of social pensions is

currently limited and that in most cases,social pensions are not intended to fully coverexpenses, individuals are well-advised tosave for themselves. Many do, though feware able to amass a store of savings over theirlifetimes to serve as a source of income in olderage. Many people, especially those operatingprimarily in the informal sector, save in-kindrather than in financial form. Householdsheaded by older people are likely to havemore assets compared with youngerhouseholds, having had a longer time toaccumulate them.27 However, older people mayalso be more likely to be income-poor despiteowning assets, unless their assets, such asagricultural land, real estate, or vehicles,can be rented out. A World Bank study foundassets to be a source of income in old age for14 percent of people interviewed in Colombia(see Part II, Colombia Spotlight).

Ownership of land and property is stillfar more likely to be concentrated amonghigher income strata rather than constitutinga realistic option for people living on lowerincomes, in spite of land reform in many low

and middle income countries. Furthermore,the practice of selling land and property topay for expenses related to old age is lesscommon in low and middle income countries,and assets are more likely to be inherited byyounger generations rather than sold for cash.Women may be particularly disadvantaged

by this arrangement, as their access to landand property is often secured through theirhusbands. Nevertheless, property can providea basis for intergenerational reciprocity,whereupon adult children take care of their

older parents in a ‘generational contract’ inexchange for inheritance of land or property.28

We come now to the question of whethergovernments and/or private financial servicesproviders can create structures that assistpeople in making regular contributions oftheir own that can be paid out in older life.Public policy has rarely incentivized informalworkers and the self-employed to save long-term, possibly because cost-effective incentivesand facilitating structures have been dismissedas too hard to design or unlikely to yieldsufficient savings to make a difference. This

should change.Standard contributory systems are under

stress, and policymakers may prioritize effortsto shore up existing systems. In China a newprogram allows people who work longer toreceive a higher pension rate when they retire.The system maximizes workforce productivityand recognizes that people have differentabilities as they age. Initial results from thisrecently implemented program show that asignificant number of people are choosing todelay retirement, particularly in urban areasin jobs with low physical demands.29 Shifts inretirement age to correspond with increasinglongevity are an important way to buy thegreater financial flexibility needed to enableother reforms, such as extending coverage tolower income people.

Care in design is essential, however.Attempts in Latin America to relieve pressureon public systems by shifting responsibility toindividual pension savings accounts actuallyresulted in decreased coverage by a largenumber of pension systems over the last twodecades.30 Part of the problem was the wall

of taxes and benefits involved in crossing to aprivate system, which were not progressivelygraduated according to income levels.

In our investigation of existing efforts toencourage long-term contributions by lowerincome people alongside social pensions,we have found few large-scale examples but


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not discourage the pursuit of multipleincome sources, including both own savingsand continued work. It is not good policy todisincentivize peoples’ efforts to better theirown standards of living.

In many cases, only people without privatesavings or a contributory pension are eligiblefor social pensions. The non-contributorypension scheme in Mexico, for example,excludes individuals who already receivecontributory pensions. While this mighthelp to direct resources to the poorest people,it creates barriers to pension contributionsby those who are moderately poor and near-poor.31 If social pensions are well integratedinto the overall pension system, however, theydo not crowd out savings but can increasesavings and investment, as has been noted

in several countries including Bolivia, Brazil,and South Africa.32

Chile carried out a reform of its pensionsystem in 2008 that introduced a BasicSolidarity Pension (PBS) for individuals whohave not made contributions, and a SolidarityPension Contribution (APS) for individuals whohave made contributions, but whose pensionfund falls below a defined threshold. The APSis a progressive system in which the amountreceived gradually diminishes as the amountof the self-funded pension increases and allowsthe total old-age pension to grow along withsavings funded by individuals.33

Two years ago, to increase contributionsamong those living in poverty, the Colombiangovernment introduced a program calledPrograma de Subsidio al Aporte en Pensión(PSAP), which allowed those below the povertyline to access a subsidy of 20 percent of theircontributions at the maturity of the pensionfund. By encouraging even low incomerecipients to contribute, PSAP stretches limitedsocial pension funds.34

It may also be a sensible use of public

subsidies to incentivize long-term savingsthrough matched savings accounts (see Box 1).

Facilitating Regular ContributionsWhile the preceding section discussedincentives for saving, practical questions oncollecting savings must also be considered.Small, frequent contributions must be cost-effective for both the saver and the serviceprovider. Fortunately, innovations in payments

quite a number of experiments. These effortsfall into three basic approaches that deservefurther experimentation and support:

•Revising public pension design to be morecompatible with and encourage own savings(e.g., savings matches) •Developing convenient collections strategiesto facilitate small contributions

•

Facilitating private pensions for lowerincome people (micropensions)

Making Public Pensions MoreCompatible With Own SavingsA healthy approach to the problem of financialsecurity in older years will require public-private cooperation to create incentivestructures that encourage savings. Publicsystems, especially social pensions, should

Matched Savings Programs

Matched savings programs increase participation in the formalpensions system by incentivizing saving through a financialmatch to contributions–from either employers or government. Insome contexts, programs also involve other tangible incentivessuch as preferential tax treatment, prefunded benefits, or benefitsbefore retirement age. Most importantly matched savingsprograms can especially be helpful for people who have irregularand unpredictable incomes throughout their life course or arepredominantly engaged in the informal sector.

In Peru, where most micro and small enterprises do notparticipate in contributory pensions, the government hasproposed to subsidize employee salaries (up to 50 percent insome cases) if employers offer a matched savings for employees

earning close to minimum wage. Implementation of thisinitiative is awaiting a decision on a standardized definitionof minimum wage.

In Mexico in 2006, as part of the Oportunidades humandevelopment program, there was a proposal to match thesavings of Mexicans between the ages of 30 and 69 up to MXP$50per month. With the maximum savings and an equal match fromthe government, program participants would receive MXP$1,000per month starting at age 70. Seven million people would havebeen eligible. However, because of doubts regarding whetherpeople would participate given their income level, the programwas not implemented.

BOX 1


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technologies are bringing down the cost ofmanaging many small contributions even asthey make contributions more convenient forsavers. Mexico’s contributory pension systemhas set up voluntary contributions at 7-Eleven

stores to enable participation at a convenientservice point that many people already frequent.While these points of service are primarilyconcentrated in urban areas at present, they area step toward wider availability.

The much-heralded process of shiftinggovernment to person (G2P) payments toelectronic means creates a payments bridgeto millions of people that could just aswell work in reverse (P2G). For people withtransactions accounts through banks, mobilephones, or insurance companies, the way isopened for informal workers and the self-

employed to contribute to public pensions andfor private pension providers to tap this marketby offering micropensions.

MicropensionsPrivate pensions for people at the base ofthe pyramid — micropensions — have beenthe subject of limited, but still notable,work in the past decade. Micropensions areprimarily associated with microinsurance ormicrofinance organizations that have regularinteractions with customers and whichfacilitate frequent, routine collection of smallamounts. Micropensions have been slow todevelop because they require a very long pilotphase to prove viability, but organizationsincluding MicroPension in India, Invest India,REDCAMIF in Latin America, Enviu in Ghana,and World Granny’s Global Pension andDevelopment Network are working to developbusiness models for micropensions. A uniquelydesigned micropension program in India,Gift-A-Pension, allows employers of domesticworkers to set up and contribute to pensions onbehalf of their household employees.

The only micropension program in CentralAmerica, run by REDCAMIF, has found thatwhile almost all the prospective savers theyspeak with recognize the need for long-termsaving, few know how to do so in formalmechanisms. The program has found greatsuccess in its pilot phase in terms of programtake-up, and is currently being rolled out.

One of the greatest challenges formicropensions is to generate trust that the

financial institution will still be there whenthe contributor is older and that her accountwill retain its value. Since micropensions relyon contributions collected over years, usersmust be confident that they will see theirfunds in later life. Therefore, they requirestable, well-trusted providers and regulatoryoversight. MicroPension in India, for example,uses microfinance institutions (MFIs) asits distribution channel. The MFIs depositcontributions in the government pensionsystem, and the 900,000 participants receiveindividual statements from the governmentpension fund itself. While many micropensionprograms have yet to reach scale, this approachcould be an exciting space to watch.

Connecting Pensions andFinancial ServicesFor many older people, pensions are theironly contact with formal financial services.In fact, the presence of public pension programsexplains much of the variation in access tobank accounts around the world for peopleabove age 65.35 The presence of pensions

presents significant opportunities for increasedaccess to and use of financial services. Inother words, pensions can be an on-rampto financial inclusion.

Overwhelmingly, the experts who attendedour roundtable on aging and financialinclusion in Colombia in November 2014 sawopportunities for specific supportive financialservices — money transfers, enterprise andconsumer credit, long-term savings products,

If social pensions are well integrated into theoverall pension system, they do not crowd outsavings but can increase savings and investment,

as has been noted in several countries includingBolivia, Brazil, and South Africa.


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and insurance — to be linked to pensions inorder to expand the range of financial toolsolder people can access.

Bundling financial services with pensionsnecessitates partnerships between public andprivate sector players. If governments providethe pension systems, the private sector muststill create adequate links. But policies mustfacilitate these links, and in some cases thismay involve rethinking basic assumptions. Insome countries, for example, pension policy isbuilt around the assumption that benefits are(or even should be) used immediately ratherthan saved in a bank account.

Most directly, pensions can be associatedwith a basic bank account. Linked to additionalservices, pensions could be used as collateral

for credit, for automatic payment of loaninstallments or insurance premiums.

Creating a Savings CultureCreating a culture of saving is critical toincreasing the preparedness of a countryfor its population entering older years,especially given the predisposition to favorthe present in some cultural contexts36 andthe exposure of low-income people to shocks

that deplete savings. This task falls on allshoulders — governments, non-governmentalorganizations, and financial service providers.

When asked what products older customersneeded, more of our global supply-side

survey respondents mentioned savings thanpensions.37 Older people who composed ourColombian focus group participants from allincome levels reported saving for the future,even if they are doing so in-kind or informally.However, the older people we talked withwere frustrated that they were not savingenough. One study reported that the typeof saving mattered. In Colombia, 85 percentof households with children were saving forthe children’s future, while only 41 percent ofhouseholds were saving for older age.38

Providers can leverage new opportunities

and insights that ‘nudge’ people toward saving,especially drawing on insights from behavioraleconomics. Juntos Finanzas, for example,has prompted greater savings among accountholders in Colombia, Mexico, and Tanzaniathrough customized text messages thatremind account holders to save and encourageregular, rather than occasional, saving(see Figure 7). The U.K. government hasbuilt in nudges into formal systems, such as‘opt-out’ contributory pensions where thedefault option is to contribute to a pensiondirectly from a paycheck.

Government institutions and supportorganizations have a big role to play instrengthening the savings culture, helping toencourage long-term saving as an essential parof asset management across the life course.People should hear about the importance ofsaving at an early age — through public serviceadvertisements and in classroom education.

Aval Consulting in Ecuador trains people tothink about the future based on a life courseapproach. In one government-funded module,they split participants into age groups and ask

them the amount they need to live on in theirolder years. Facilitators then break down thisamount in terms of the amount people needto save today to make that financial securitypossible. Aval Consulting reports that peopleare often surprised at how much they needto save to reach their financial goals, but oncethey have a financial savings goal, they aremotivated to make it work and create an actionplan to save for the future.

FIGURE 7

A Savings Reminder Built into Customer Engagement

Source Juntos Finanzas (2015).

A text message reminder from Juntos Finanzas, which partnerswith financial institutions topromote financial education atcritical points in a client’s useof products. Such small nudgeshave been shown to have a bigimpact on behavior.


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FIGURE 8

Percent of Older People Who Worked in the Previous Week, Thailand (2011)

Source John E. Knodel, Vipan Prachuabmoh, and Napaporn Chayovan, “The Changing Well-being of Thai Elderly: An Update fromthe 2011 Survey of Older Persons in Thailand.” PSC Research Report No. 13–793 (2013).

100

90

80

70

60

50

40

30

20

10

050–54 60–64 70–7455–59 65–69 75–79 80+

Percent who worked last week

Age

Total

Men

Women


Employment and Self-EmploymentIn low and middle income countries themajority of older people continue to work. Forexample, national level data illustrate that inThailand a substantial proportion of peoplethroughout their 60s and early 70s remain in

the workforce (see Figure 8). A lack of data onformal and especially informal employmentin many countries is likely to contribute to theperception that older people do not work.

Work in later life requires access toappropriate and supportive financial services,

products, and information. But it also calls forgovernments to play a strong role in reducingage discrimination in the labor market, tacklingnegative attitudes around work in older age andproviding opportunities for older people to reskilland train. Much of the focus of employment

policy is on building the financial capabilityand human capital of younger people, yet olderpeople also have the right to decent jobs andfinancial services to enable them to continueworking as long as they can and want to, andit is sensible public policy to support them.

Supporting Self-Employment,Family Support, and

Other Coping Strategies


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55, although they state that this can be relaxedif ‘physical condition is exceptional.’43

Our online poll of providers shows capsaround the world that are poorly related toactual life expectancy (see Figure 9). In nearly

all cases, the credit cut-off was far lower thanlife expectancy for a person at age 60 in therelevant country. The average gap was nearly15 years, suggesting that many people livefor well over a decade without being able toaccess credit. One insurance company andseveral financial institutions in Colombiareported that the age cap is slowly rising butstill remains in place in the absence of morecomplete data about clients.

Blanket age caps are a form ofdiscrimination. They are not morallydefensible and they represent a missed market

opportunity, given evidence of longer livesand continued economic activity among thepost-retirement-age population, not to mentionwide individual variation. At a minimum,age caps need to be adjusted to currentdemographic realities. Perhaps they canbe done away with altogether.

The source and authority for the capsremains obscure. In interviews with providers,we found that the insurance cover financialinstitutions hold precluded lending to peopleabove a designated age. We wondered whetherthe risk of aging could simply be dealt withby higher pricing for insurance coverage andpassed on to consumers through interest rates,but providers in countries that employ lowinterest rate caps report that this solution is noa viable option.

The appeal of age as an indicator ofcreditworthiness is that it is objective and easyto ascertain. Nevertheless, this proxy is not afair or accurate picture of creditworthiness,particularly for ‘thin file’ people who areapplying for credit for the first time in older ageThe many experiments in using alternative

data to identify good credit risks could takeup the task of finding alternatives to agecaps. In addition, the standard credit analysistechniques of individual microlending could beadjusted to take characteristics of aging intoaccount and give a more accurate assessmentof creditworthiness. Allowing co-signers onloans could leverage social connections andspread risk. There are many possibilities onceattention is turned to this challenge.

Self-Employment and Access to CreditBecause of age discrimination in the labormarket, the presence of a national retirementage, and physical changes often associatedwith the aging process, older people may

often find themselves unable to obtain formalemployment. Although legislation exists insome countries on age discrimination in theworkplace, negative attitudes toward olderworkers remain a significant barrier for olderpeople.39 Opportunities for education and re-training in later life can also be limited, withmany adult education programs setting agelimits at 35 or 40 years.40

Operating a microenterprise or smallbusiness is therefore an important alternativein later life, bypassing a hostile labormarket, even for those with previous formal

employment. Self-employment can also allowan older person to change from a strenuous

job to one that is less physically demanding orrequires fewer hours of labor. And of course,many people who have been self-employedthroughout their lives continue to farm oroperate their businesses in their later years.

Financial tools could — and should — beavailable for older people who are self-employed. Among the financial servicesproviders who responded to our online poll,about one-quarter stated that they haveservices that are particularly tailored to olderadults. This figure is higher than we expected,and underscores an opportunity that someproviders may now be recognizing.

Eliminating or Restructuring Age CapsHowever, we found that older people havespecial difficulty accessing credit from formalfinancial institutions due to age caps. In theabsence of other objective information onwhich to base credit or insurance decisions,some providers rely on age as a proxy for risk.Over two-thirds of the providers we surveyed

reported that an age cap is used in the approvalprocess for at least one of the products theyoffer, and most felt that age was a legitimateeligibility factor. In India many institutionsapply an upper age limit (or age cap) of 55years,41 regardless of individual requirementsor capabilities, and despite the fact that lifeexpectancy in India at age 60 is 16 years formen and 18 for women.42 Some microfinanceinstitutions in Bangladesh have an age limit of


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FIGURE 9

Gap in Years Between Institution-Reported Age Cap and Life Expectancy (2014)

Source Center for Financial Inclusion, “Online Survey of Aging and Financial Inclusion” (Washington, DC: Center for Financial Inclusion, 2014), United Nations,World Population Ageing 2013 (New York: United Nations, 2013). Age cap data are based on self-reported responses from financial institutions in each market. Where there weremultiple age caps reported, an average was taken.

25

20

15

10

5

0 M

E X I C O

I N D I A

N I G E R I A

C H I L E

E C U A D O R

M E X I C O

G H A N A

T O G O

A Z E R B A I J A N

E G Y P T

M A D A G A S C

A R

C O L O M B I A

E L S A L V A D O

R

M O L D O V A

Number of years


Family and Social NetworksThroughout history, adult children have beenseen as the main source of financial supportin older age, and today they still continue toprovide an important level of support, evenin the presence of shrinking family sizes andincreased migration. The majority of olderpeople in low and middle income countrieslive with other family members and mayalso receive financial and in-kind support. InBolivia, for example, 61 percent of older peoplelive with children and other relatives, 25percent with their partner or spouse, and only14 percent live alone.44 Family support also hasan important gender dimension, with a larger

proportion of older women than men relyingon support from families, especially in light ofwomen’s relative lack of pension enrollment.

In some countries, factors such as conflictand HIV have dramatically changed familyliving arrangements. There is evidence of anincrease in ‘missing-generation’ householdswhere one or more of the middle generationis absent, or where grandparents are the solecaretakers of grandchildren. In Dominica, 48

percent of primary school children and 36percent of secondary school students werefound to reside with their grandparents whiletheir parents were working in the UnitedStates.45 Rather than entering a period of lifewhen they could rely on others, many olderpeople gain new caregiving responsibilities.An older person’s income may therefore not beused only for the individual’s consumption, butis also a contribution to household resources.In general, individuals undertake a varietyof reciprocal monetary and non-financialexchanges within families. Decisions onwork and retirement will depend very muchon household living arrangements and the

capacity of different household members.Labor migration (both internal andinternational) and population aging haveincreased rapidly in the last two decades. Theresult is a growing number of geographicallyseparated families, with older membersremaining in the home country or in ruralareas. For example, it is estimated that asmany as 4.2 million Colombians live abroad,and many of these migrants have parents


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remittances sent by internal labor migrantstend to be more reliable and consistentthan those sent by international migrants.51 There are many possible reasons for this,related to the mode of delivery or steadiness

of the sender’s income. However, the mostlikely reason is the greater separation ofthe immigrant from his or her family, asremittances tend to decrease in amount andregularity as immigrants spend more yearsabroad.52 In such situations, remittances mayonly amount to ‘survival remittances’ or beused in emergency situations such as urgenthealth care or hospitalization.53

Financial Management —Day-to-Day and in Emergencies

Expenditures in Older AgeExpenditures in older age differ widelydepending on social norms, cost of living, andavailability of public and private services. Inbrief, they are similar to expenses throughoutthe lifecycle with two exceptions: health-related expenses and family financialobligations. Household survey analysis fromBolivia provides an example of the typesof expenditures made by low income olderpeople (see Figure 10). By far the majority ofexpenditures are on food, with expenditureson health also featuring highly.

Expenditures by older people oftencontribute to broader household expensessuch as food, utilities, investment in businessor productive assets, or school fees for youngerhousehold members.

While household survey data provide auseful snapshot of expenditures, they do notcapture the one-off shocks which may affecthouseholds and individuals. Shocks can bemacro, such as changes in food prices, orindividual, such as illness.54 While shockshappen to people of all ages, health-related

shocks are more likely in older age.55

Moreover,it may be more difficult for older people toadjust their financial management strategiesto cope with shocks if they are living on fixedincomes or are unable to increase the amountof work they do.

In its work with older people, HelpAgehas discovered that people are more at riskduring natural (and manmade) disasters.

and older relatives in Colombia.46 A similarseparation of families occurs inside countriesas a result of rural-urban migration. One-thirdof Colombians above age 59 live in rural areas,compared with 25 percent of the population

as a whole, creating a rural/urban divide toaging.47 In Argentina, the latest agriculturalcensus shows an increase in the farmingpopulation over age 55 from 14 to 18 percentbetween 1988 and 2002, with a corresponding 6percent decrease in the population under 44.48

Enhancing International andDomestic Money TransfersThe increasing reliance of many older peopleand their families on remittances frommigrant family members places particularurgency on the development of reliable,

affordable, convenient, and age-friendlymoney transfer channels.

In 2011, the World Bank reported that overU.S. $300 billion in international remittancepayments were received by people indeveloping countries.49 The infrastructure forinternational remittances has improved, andlarge, established remittances companies arenow competing with nimble start-ups. Costsin the highest volume corridors, such as U.S.-Mexico, have fallen dramatically.

There is also significant movement in thepayments infrastructure within countries.Success stories like M-Pesa, MTN MobileMoney, Tigo Cash, and Airtel have proven thateven with small transfer amounts a mobilepayments infrastructure can be profitable,while increasing security for customers. Thegrowth of payments systems within countriesis limited by the environment for electronicpayments and mobile money. In its 2014 GlobalMicroscope on Financial Inclusion, the EconomistIntelligence Unit found huge variability acrosscountries in the policy and infrastructureenvironment for mobile payments. In Latin

America, for example, growth may be muchslower than in Africa in part because of lesspermissive policies for mobile innovation.50 Latin America has been relying more on agentbanking than mobile to increase the ubiquity ofmoney transfer outlets.

From the user perspective, a limitationof remittances is that their timing can beunreliable, although research suggests that


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FIGURE 10

Expenditures of Older People, Bolivia (2013)59

Source Federico Escobar Loza, Sebastián Martinez Wilde and Joel Mendizabal Cordoba,El Impacto de la Renta Dignidad (La Paz: Unidad de Análisis de Políticas Sociales y Económicas,2013). The expenses listed here were calculated on average, and therefore do not add to 100 percent .

52% Food

9% Health

10% Housing/Utilities

4% Transportation

2% Business

7% Savings

2% Gifts for family

1% Education

6% Clothing

1% Other


Aid distribution mechanisms often rely onpeople standing in lines or approaching adistribution point. For older people with lowermobility, these can be problematic.56 Having awide social network can help older people to

weather emergencies, as can electronic meansof distributing payments such as remittancesfrom family in other places.

Expenditures on social and cultural eventsalso play an important role in older age.Remaining part of important social and culturaloccasions can help to maintain the socialnetworks which can be called upon in times ofneed, or simply to reduce isolation. Many olderpeople also worry about end of life and the costof funerals.57 Consequently, expenditures onrituals to prepare for the end of life, or savingfor funeral costs, may feature among outgoing

costs in some parts of the world.

Basic Savings and Credit for FinancialManagement and EmergenciesWhen faced with the task of meetingexpenditure requirements using irregularand multi-source incomes, older people canturn for financial management assistance tobasic savings, credit, and insurance if theyare available. However, participation rates insuch services among older people at the baseof the pyramid remain low. Throughout thedeveloping world less than 50 percent of olderpeople have an account at a formal financialinstitution, and in all regions older people areless likely than adults in their middle yearsto have an account (see Figure 11).58 Many ofthe existing accounts are not actively used asmoney management tools, but primarily asmechanisms for receiving payments such aspensions. In some cases, accounts are used asvehicles to pay utility bills.

Short-term loans are also importantconsumption-smoothing tools. In Colombia,many respondents in the lower income

strata described resorting to gota a gota,an informal loan typically associated withcriminal activities such as drug-traffickingor smuggling. Respondents reported usingthis informal loan at least once to cope withemergencies, as gota a gota provided cashon the same day without conditions. It wasused only in dire circumstances, with theknowledge that such lenders charge very high


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FIGURE 11

Account Penetration by Region and Age Group (2011)

Source Asli Demirguc-Kunt and Leora Klapper, “Measuring Financial Inclusion: The Global Findex Database,” Policy Research Working Paper 6025 (Washington, DC: World Bank, 2012).

100

90

80

70

60

50

40

30

20

10

0HIGH INCOMEECONOMIES

EAST ASIA &PACIFIC

EUROPE &CENTRAL ASIA

LATIN AMERICA& CARIBBEAN

SOUTH ASIASUB-SAHARAN AFRICA

MIDDLE EAST &NORTH AFRICA

65+25–6415–24Percent with an account


Insurance and Risk MitigationSeveral insurance companies and NGOs, incollaboration with national governments,are piloting micro-insurance schemescharacterized by low premiums and limited

coverage aimed at lower income individualswho cannot access mainstream insurance.61 There are limited data on the extent to whicholder people can access micro-insurance, andit is important to design micro-insuranceproducts in a way that provides genuine valuerelative to premiums.62 Nevertheless, effortsto bundle insurance products with existingproducts have found high uptake. In Colombia,some insurance companies promote uptakethrough door-to-door sales with financialeducation.

MetLife reports that some utility companies

offer life insurance (backed by insurancecompanies) for a few extra dollars on theutility bill per month.

Finally, a proper funeral is important forolder people in many parts of the world.Funeral insurance and burial funds offer a way

interest and are reputed to employ violenceat times in collecting late payments. Smallloans from microfinance institutions that canbe distributed quickly could serve to meetemergency needs associated with financial

shortfalls and income unpredictability.Consumer loans can be tailored to the needs

of older people. Some Colombian respondentsreported that their utility company offeredthem a consumer loan on appliances,spreading payments for washers and dryersover multiple utility bills. Social transfers,such as social pensions, have also been shownto facilitate access to credit by providing aguarantee that the beneficiary will have aregular income from at least one source.60 In Australia, Good Shepherd Microfinance’sno-interest loan scheme supports people

receiving public benefits to borrow for lumpsum expenses ranging from car repair to thepurchase of computers for schools. It wasdesigned in recognition of the difficulty peopleon small fixed incomes such as social pensionsface in paying for large one-time expenses.


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for older people to relieve some of the anxietyassociated with funeral expenses. To cite oneexample, in the Philippines, older people paymonthly contributions to a community-basedprogram supported by a local NGO. The NGO

holds the money in a bank account and recordsthe contributions. When a member dies, thefamily receives a lump sum to pay for thefuneral. The maximum age for joining is 55,and members must not have been diagnosedwith a terminal illness at the time of joining.63 Elsewhere, funeral insurance is increasinglyavailable and affordable through technology-enabled delivery channels. In South Africa,schemes start as low as R35 (U.S. $3) per monthand are sold through many shopping outlets.

While some would say that older peopleare not insurable given life expectancy, we

see evidence that other at-risk populationsdo receive insurance. In sub-Saharan Africa,many insurance companies are able to insureHIV-positive populations, albeit often at ahigher premium.

The liquidity of assets is a crucial factor indealing with major shocks. While livestock,tools, or vehicles may be relatively easy to sellquickly, land and property take longer, and,once sold, may reduce a household’s qualityof life or ability to earn an income. Financialservices institutions can structure short-termloans or encourage short-term savings sothat one emergency will not cause financialinstability. Our demand-side researchon Colombia indicates that families areinstrumental in smoothing consumptionduring emergencies, and in severe emergencies,the wider community often steps in to help.Increased accessibility and infrastructure forpayments can facilitate family and communityhelp in emergencies, especially when longdistances are involved. For lower income people,financial communities such as informal orformally supported savings and credit groups

can be very helpful in financial managementand risk mitigation.

Health Care FinancingNearly all older people will have to deal witha health emergency — either their own or thatof someone close to them. Moreover, chronicillness is an increasingly important reality indeveloping nations, and the availability andaffordability of drugs for chronic conditions can

be a significant burden.64 There is an enormousneed for health care financing.

Making the case to consumers is notdifficult — many people are aware of thelikelihood of a health emergency in theirolder years. However, providing servicessustainably is much harder, especially at thebase of the pyramid. Colombia, for example,has introduced a differentiated system ofhealth insurance through which the wealthierand formally employed make contributionsduring their working lives via social securitywhile people on lower incomes receive healthinsurance subsidized by the state. Those ofmiddle incomes pay an amount that graduallyincreases according to income. This has createdalmost universal coverage, with more than 23million poor and vulnerable people now havingaccess to health services.65

The micro-insurance community hasbegun to experiment with low-cost insurancethat covers the most frequently experiencedhealth costs and sometimes even preventiveservices. MicroEnsure offers inexpensivehealth insurance in Tanzania in cooperation

with an existing healthcare system, includingyearly check-ups for clients over age 50.66 MicroEnsure’s health insurance productin India covers the six most frequentlyexperienced treatable diseases, and insurancepremiums are only a few dollars per year.While this kind of solution does not cover allhealth-related expenses, it does reduce thelikelihood that an emergency will place anolder person into financial jeopardy.

Making the case for health care financingto consumers is not difficult — many peopleare aware of the likelihood of a health

emergency in their older years. However,providing services sustainably is muchharder, especially at the base of the pyramid.


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available to them, but can also make themmore susceptible to fraud and abuse. Forexample, in South Africa, there have beencases were recipients of the Old Age Grantwere fraudulently signed up to funeral schemesor micro-loans; in other cases mobile money

agents pressured older people to purchasegoods from their shops before agreeing to helpthem access mobile money accounts.68 Suchactions are made possible when recipientslack awareness about products and processes.Consumer protection and appropriatechannels for making complaints aboutfinancial services providers are particularlyimportant. Developing appropriatechannels for complaints and support meansunderstanding the way older people aremost comfortable to communicate.

A decline in physical mobility can beexperienced in older age, particularly if anolder person has a history of manual laboror poor nutrition. For older people who areaffected by mobility issues, travelling tobank branches, agents, or ATMs can posea challenge. The experts who attended ourroundtable on aging and financial inclusionin Colombia saw lack of financial servicesinfrastructure, especially in rural areas, asa particular barrier to financial inclusion forthis group. This trend is often compounded bythe perception that older adults cannot easily

learn to use new technology — a commonmyth which arose during our online poll withfinancial services professionals.

While older people may be among those leaslikely to own a mobile phone,69 research shows

Use of financial services can become moredifficult with physiological changes includinggradual hearing loss, changes in vision, andslower reaction times. However it is importantto remember that chronological age is not agood indicator of a person’s health and that

these changes can be experienced at differentstages and with different levels of severity.

Such changes can affect access to financialservices, particularly if older people are notseen as ‘desirable’ customers, and productsare not specifically targeted through themost appropriate channels. For example,misunderstanding the communication needsof people with hearing or vision impairmentscan perpetuate stereotypes around older age.Hearing-impaired older people may be labeledas ‘confused’ because they didn’t hear fully andthen be seen to respond ‘inappropriately.’67

In our survey of financial services providers,one of the most frequently cited barriers toolder adults adequately accessing and usingfinancial services was lack of patience byproviders. Survey participants were askedto describe an older person they know wholacks access to or is unable to adequately usefinancial services. They frequently describedproviders as not having the time to workwith older people. Negative attitudesand myths about older people or lack ofunderstanding of the diverse needs of older

people may be significant barriers to financialinclusion in older age.Poor communication about products and

services not only leads to older people lackingknowledge of what financial services are

Removing Age-Based Barriers

to Financial Inclusion


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that they still use mobile money services. Theymay borrow or pay to use a phone, or they mayget help. In Tanzania for example, older peoplereported that they saw the benefits of mobilemoney and were eager to use it themselves,but had not had the opportunity to learn.70

Investment in teaching older people to usemobile financial services could lower productcost for providers over the long-term and openup the market. Despite the value of technology-enhanced financial services for older people,such services are rarely marketed with theirspecific needs in mind. A growing numberof mobile phone adaptations cater to specificphysiological needs that can accompanyolder age, such as amplified sound, high-contrast displays, and large text sizes.71 Theproliferation of smartphones will make suchaccommodations easier.

Proof of identity can be a significant barrierto accessing financial services at any age,and can particularly affect older age cohorts.Many of today’s older people were born beforethe development of comprehensive civilregistration systems. In Thailand for example,older people have faced regional and ethnicdisadvantages in accessing governmentservices due to lack of identificationdocuments.72 Financial institutions couldaccept alternative forms of identity such asbaptism, vaccination, public works, or voter

registration cards73

and leverage flexible ‘knowyour customer’ laws where possible.Finally, self-exclusion can be a motive for

not using financial services. For example,a family member may already have a bank

account, or an individual may not trust inservices and institutions because of previousbad experiences. Or indeed older peoplemay assume that they will be refused afinancial product because of their age, sodo not even approach a financial services

institution. Exclusion is highly context-specific,underscoring the need for flexible policies thatrespond to the reality on the ground.

Prioritizing Financial Capability Efforts to prioritize financial inclusion mustinclude products appropriately tooled to olderpeople. Financial capability interventions canbe built into product design, giving peoplethe option to, for example, go digital withexisting products and facilitate learning onalternative platforms. Financial educationcan involve governments using existingavenues of information such as localbranches of older persons’ associations orolder persons’ networks, which commonlywork at a community level in a familiar styleand language. Local radio and communityinformation sessions are important oralchannels for disseminating information fornon-literate groups and reaching people withvisual impairments. Alternative formatsfor written information about products andfinancial institutions include large print,pictures, symbols, and plain language.74

At the same time, products designed for theolder market segment may need to be adjustedto take into account acquired impairmentsand the legacy of lower education and literacy.The good news here is that adaptations to

A growing number of mobile phone adaptationscater to specific physiological needs that canaccompany older age, such as amplified sound,

high-contrast displays, and larger text sizes.The proliferation of smartphones will makesuch accommodation easier.


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is a subsidiary company of Net One, acompany that offers microfinance productsand mobile phone services. Net One has beenaccused of using its access to social pensionbeneficiaries to market other products tovulnerable groups, with little regard for

client protection.Recognizing that older people may be more

susceptible to mistakes and abuse in financialservices, it is especially important to ensurethat consumer protection extends to oldercustomers. This could mean ensuring thatcomplaints mechanisms are friendly andeasy to access. It certainly means highvigilance whenever benefit payouts are atstake to ensure that they reach their intendedbeneficiaries and that those beneficiaries arenot subsequently targeted by aggressive orfraudulent sales pitches.

For all savings and pension instruments,especially in countries with high inflationrates, adequate interest rates are an importantcomponent to proving the worth of suchproducts to consumers. With high inflation,currency changes, and national economicshocks, consumer trust in financial tools andthe formal financial system can be severelyeroded (as in Latin America throughout thelatter part of the 20th century). Maintainingtrust and proving the usefulness of savingsproducts requires interest rates that at least

come close to matching inflation. Depositinsurance and related guarantees in case of abanking crisis are important to facilitate trustin financial instruments.

accommodate these needs are likely to benefita large number of younger clients as well.

Earning TrustOne of the top issues that emerged from ourexpert roundtable on aging and financial

inclusion in Colombia was the issue of trustas a barrier to older people accessing financialservices. Long-term savings and contributorypension systems also require a great deal oftrust. For example, although in the formerSoviet Union lack of trust in institutions ishighly prevalent after the collapse of thesystem in the early 1990s, in China, where thebanking sector has not experienced shocks,trust is not such a concern.

Client trust must be earned, and customerservice tailored to the specific needs of olderadults is a start. Barclay’s, for example, trainsall of its staff in being sensitive to older people,making sure to greet them at the door, askingif they would rather sit than wait in longlines, and verbally explaining changes in theirservices.75 Providers who prioritize customercare for older people can go a long way toensuring trust.76

Consumer protection figures importantlyin the design of pension services, whetherwe are talking about preserving the stabilityof the institutions that hold long-term savingsor about electronic distribution of pension

benefit payments to new and lower-incomecustomers. In South Africa, for example, thecompany responsible for electronic deliveryof the social pension, Cash Paymaster Services,

Client trust must be earned. Providers whoprioritize customer care for older peoplecan go a long way to earning trust.


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This report has described older people asa growing market segment with distinctfinancial service needs that arise from theirmultiple and varied income strategies. Wehope that our portrait will spur readers toaction, both as a social and moral imperative

and because of the opportunity aging presents.In this section we distill the essential action-oriented messages for decision-makers ingovernment, financial service providers, andsocial service organizations, all of whom haveimportant roles to play in financial inclusionfor people as they age.

1. Improve data on income sources andfinancial services used by older people. Data collection on incomes in old age shouldinclude all the multiple sources older peopleactually use, and should work with definitionsstandardized across countries.

2. Support the goal of universal pensioncoverage by integrating social pensions, ownsavings, and contributions to pensions, andimprove compatibility with other incomestrategies.

•Prioritize the extension of social pensions toclose the coverage gap as quickly as possible.

•Leverage the distribution of social pensionsto increase financial inclusion throughelectronic payments, starting with storedvalue and transfers.

•Eliminate disincentives to saving forolder age by avoiding ‘cliffs’ in socialpension design.

•Develop electronic payment systemsto enable those working in the informalsector to contribute to pensions throughouttheir lifetimes.

•Offer well-designed matched savings andrelated programs to create incentives forlong-term savings or contributions topension plans.

•Microfinance institutions and other providersserving the base of the pyramid shouldcontinue to experiment with micro-pensions.

Priority Actions


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5. Financial education and consumerprotection

•Invest in financial awareness so that olderpeople understand the options that existfor them to benefit from financial services.

•Financial education efforts should addresslife course issues, especially to encourageyounger people to begin planning for theirlater years.

•Consumer protection systems should beespecially vigilant to ensure that pensionpayouts do not provide opportunities forfraud and abuse.

Many of the priorities mentioned here willrequire cooperation between the public andprivate sectors. In some cases, such as theconnection of pensions to electronic payments,this cooperation will take the form of public-private partnerships. In others, it will requiredialogue and careful design.

Finally, we return to our beginning. Agingpopulations bring both the necessity forpublic action and a wide range of marketopportunities. The challenges and theopportunities are emerging rapidly. It isnow time for those involved with financialinclusion to make the adjustments in their

outlooks and priorities that will be neededto craft adequate responses.

3. Make credit more accessible to older people.

•Eliminate or raise age caps. •Offer emergency loans against pensions.

4. Deepen existing financial products used by older people and design new ones.

•Reduce the cost and increase theconvenience of domestic and internationalmoney transfers to facilitate familyremittances.

•Micro-insurance, including life and funeralinsurance, can reach many more people.

•Although health insurance should be a majorpriority, the gap between need and coveragewith effective products is especially largeand requires much experimentation.

•Increase delivery channels; empower olderpeople to use digital channels.


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FIGURE 12

Percent of Population Ages 60 Years and Older,

Colombia (2013–2040)


25

20

15

10

5

0

Percent

204020352030202520202015

Year


This section presents findings from acountry case study on financial inclusionand aging. The Colombia case study is usedfor illustrative purposes to provide a moredetailed consumer perspective on incomestrategies and financial services in older age,

in recognition of the lack of systematic data onthis subject. The Colombia case study drawson existing secondary literature as well asoriginal demand-side research using focusgroup discussions and participatory researchapproaches with older people from a diversityof ages and income levels. Research locationswere selected to provide perspectives froma variety of contexts — including urban andrural, Afrocolombian, and indigenous, andthose directly affected by the conflict or withhigh levels of internal displacement, as wellas locations unaffected by the conflict. Thisincludes locations in Valle del Cauca, Cauca,Distrito Capital, and Cundinamarca.

Profile of Aging in ColombiaAccording to UNDESA, 9 percent of thepopulation in Colombia was 60 years or olderin 2013. This proportion is projected to increaseto 12 percent by 2020 and to 20 percent by 2040(see Figure 12). These figures mirror agingtrends in other middle income countries.Colombia’s population of 5 million internallydisplaced persons particularly influences the

financial inclusion context, given that manydisplaced older people lack identity cards,property, have lost their source of livelihood,and are socially excluded in other ways.

Twenty two percent of older people livein households classified as poor, but theproportion of individual older people whoare poor increases to 46 percent when theirincomes are analyzed. This highlights thatwhile the basic needs of older people, such as

food and shelter, are often met through generalhousehold resources, older age is associatedwith a lack of independent income. For olderpeople living in rural Colombia the situation ismore pronounced as the incidence of poverty isapproximately 15 percent higher than for older

people living in urban Colombia.

Income Strategies inOlder Age in ColombiaAs is commonly found in other middle incomecountries, Colombians rely on a variety ofstrategies to secure an income in older age. A

Spotlight on Colombia


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FIGURE 13

Strategies to Cover Old-Age Expenses, Colombia (2013)

Source Rekha Reddy, Miriam Bruhn, and Congyan Tan, Financial Capability in Colombia: Results Froma National Survey on Financial Behaviors, Attitudes, and Knowledge (Washington, DC: World Bank, 2013).

Under age 60

Over age 60

Percent

0 10 20 30

INHERITANCE

PENSION FROM OTHERHOUSEHOLD MEMBER

SUPPORT FROMFAMILY/FRIENDS

GOVERNMENTPENSION

NON-FINANCIAL

ASSETS

BUSINESS INCOME

EMPLOYER PENSION

KEEP WORKING ALWAYS

SAVINGS/OTHERFINANCIAL ASSETS


private pension funds. There is also a socialprogram, Colombia Mayor, which provides cashtransfers to the poorest older people (see Box 2)

According to analysis of 2009 householdsurvey data by Rofman and Oliveri, 23 percent

of people ages 65 and older receive a pension.Approximately three-quarters of the populationare not covered by any pension scheme and relyon other strategies to secure an income in olderage. Pensions are least likely to feature amongold age income strategies for older people in thelowest income quintiles (see Figure 14).

Within the under-60 group, approximately25 percent are actively contributing to apension scheme, either through an employer orthe government. A further 25 percent plannedto cover expenses in old age primarily withsavings and other financial assets. According

to Rofman and Oliveri, the proportion of thepopulation currently contributing to a pe

aging and financial inclusion: an opportunity

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