Entrepreneurship can be a transformative option for young people to gain economic independence, shape economies and drive businesses for good. Young entrepreneurs are critical to future economic development and key to achieving the Sustainable Development Goals. But while young entrepreneurs rarely lack ambition, they often lack resources.
Insufficient access to finance remains a consistent barrier for young people wanting to start and grow their business, limiting their ability to generate income, create jobs, and contribute to national economies. Access to finance for young entrepreneurs in the early stages results in better entrepreneurial outcomes. However, young entrepreneurs are only half as likely to secure financial credit compared to their older counterparts. Even in regions with robust financial infrastructures, such as Europe, a mere 33% of young (aged between 15 and 30) entrepreneurs manage to secure funding from traditional banking channels, according to a 2023 Flash Eurobarometer survey. These barriers aren’t just financial; they’re systemic, reflecting a broader disparity in access and opportunity. This challenge is worse for marginalised groups, including women and people with disabilities, among others, necessitating inclusive solutions.
Financial products and services, when they are available, may not be suitable for the needs of young people, often lacking flexibility in terms of credit history, collateral, and risk requirements. Young people are also less likely to have the product awareness, banking and credit history to have the necessary savings and collateral and lack the necessary business skills to access finance.
Yet, through our 20 plus years of experience, we know addressing the financing gap alone is not enough. Research underscores the importance of equipping young entrepreneurs with financial literacy skills to navigate the complexities of entrepreneurship. Financial health requires more than just access to funds; it demands resilience, capability, and confidence in managing finances effectively.
Youth Business International (YBI) together with ten enterprise support organisations (ESOs) from our global network of members have developed an evidence-informed approach that can systematically improve the financial health of young entrepreneurs by combining financial access with financial literacy. As part of this, we have identified four elements of financially healthy young entrepreneurs:
- Knowledgeable: Young people are aware of the products and services available to them and can manage their day-to-day finances to meet their business needs
- Resilient: Young people have the capacity to absorb financial shocks
- Capable: Young people have the skills and capacities needed to reach their business goals
- Confident: Young people feel secure and in control of their business finances
YBI and our members know that the right mix of financial health activities can address the readiness of young entrepreneurs as well as the availability of financing, leading to more successful and scalable youth-led businesses.
ESOs play a pivotal role in equipping young entrepreneurs with the tools and knowledge they need to thrive. These organisations serve as crucial bridges, offering tailored support to navigate finance and business management.
YBI’s Financial Health Theory of Change (ToC) provides a strategic framework for ESOs to amplify their impact. By advocating for an inclusive entrepreneurial ecosystem, fostering partnerships with financial sector actors, and prioritising skill development, ESOs can catalyse transformative change.
Our ToC comprises three pathways we recommend ESOs include in their support:
- Pathway 1: Engage Government and Private Sector to Foster an Entrepreneurial Ecosystem that Enables Young Entrepreneurs
The entrepreneurial ecosystem is critical to support young people to establish and grow their businesses. This voice of young entrepreneurs needs to be included, considered, and responded to in decisions taken by governments and financial institutions. Without supporting institutions and regulators, young people will struggle to sustain and grow their business. YBI members identified regulatory barriers in 40% of contexts, as well as issues with the cost of credit and inflation.
- Pathway 2: Partnering with Financial Sector Actors
For the financial health of young entrepreneurs to improve, they need to have financial products that are available, appropriate, and known to them. This includes formal financial products as well as alternative forms of financing such as grants, revolving funds, savings groups, crowd funding, pitching competitions, or accessing finance via family, friends or communities. Young entrepreneurs supported by ESOs should gain awareness of their options, understand how to access them, and be supported in their applications and engagement.
- Pathway 3: Developing Young Entrepreneurs’ Business and Financial Management Skills
Global evidence shows that when young entrepreneurs have more developed financial and business skills, they are better equipped to tackle challenges such as access to finance, navigating markets, and developing business networks. Personal, business, and digital skills are necessary for young entrepreneurs to be better equipped to succeed in their business ventures. YBI members identified business skills as the greatest challenge for entrepreneurs looking to access finance, specifically a lack of financial management and record keeping and lack of knowledge and confidence around financing options.
Nurturing financially healthy young entrepreneurs is both a social and economic imperative. By addressing systemic barriers and empowering the next generation of innovators, we lay the groundwork for inclusive economic growth and sustainable development. It’s time to view entrepreneurship as a catalyst for change and unlock the potential of young minds.
Learn more about YBI’s financial health approach in our paper ‘Financial Health for Young Entrepreneurs – Our Learnings’.
