Payday loans fit in a certain niche in personal finance, but the abuse caused by short terms and high interest rates causes a huge impact on the poor. But what about kids? Pocket Money is a lender focused on giving children small “payday” loans — even though they don’t get paychecks — and teaches them the hard, painful truths about borrowing money. (It’s not real.)
They always say you need to start kids young when it comes to financial learning, and an unusual group in India is taking that to heart. The Children’s Development Khazana is a child-run bank focused on helping street children build financial security through microtransactions. The project has been around since 2008, but only in the past few years the project has seen huge increases in membership, and has expanded into other south Asia countries as well.
The system works as a credit union of sorts, with membership only allowed for kids who make their money ethically, not through begging, drugs, or other illegal activities. The bank offers passbook savings accounts, in the traditional “write by hand” method, for their members. The bank, as a whole, manages a single savings account with a financial institution, which earns interest that is distributed to accountholders. The ‘peer review’ method of operation seems to be successful: rather than being told by adults how to handle their money, the bankers and tellers are mostly children, and are accountholders as well, so negotiations are handled between people of similar age and stakes in the bank.
Also, like most microfinance systems, the CDK also does microlending, requiring a defined business plan of course, making them as functional as a full-service banking institution for the poor and homeless children of India. Hopefully the goals of the Children’s Development Khazana will come to pass, helping elevate the children out of poverty, and put them on a track of financial independence by teaching them how to properly manage money at such a young age. Similar programs are also thriving in a few places around the U.S., largely with educational goals rather than povery-reduction, making the stakes not nearly as high.