The Unexpected Link Between Banks and Birth Rates

People behave in all kinds of strange ways, and it turns out that a lot of what we think is immutable -- like how many kids we want to have -- is actually heavily affected by our environment. 

For example, there are a number of studies that show a pretty strong link between financial opportunity and fertility, and a recent National Bureau of Economic Research paper confirms it. 

What can this tell us about the world today?  

Fertility and banking in the U.S.
Looking at several states in the northeast U.S. in the mid-1800s, the researchers tease out the effects that a bank's presence, level of deposits, and circulating currency might have on child-to-woman ratios in an area. After controlling for a host of possible confounding factors, like education, income, migration, etc., the authors of the study find a strong negative correlation between financial development and fertility.

In other words, the more access that people have to outside sources of financing, the less likely they are to have more children. From the study: "The presence of a bank in a given county around 1850 reduces the child-woman ratio by approximately 3 percentage points." 

Why are there fewer children when there's more finance? It might be driven by the "old age security" hypothesis, in which people tend to have kids as part of ensuring financial security, but perhaps it also has to do with all the other activities you can engage in when there are banks around. 

Fertility and banking in Africa

Source: Wikipedia

This chart shows the number of children per woman around the world, and it's hard not to notice that the highest fertility rates in the world are in Africa.

Interestingly enough, the continent also has one of the lowest levels of financial inclusion -- a World Bank study (link opens a PDF) found that only 23% of adults in Africa have an account with a formal financial institution. In Central Africa the number is 11%, and in both the Democratic Republic of Congo and Central African Republic the figure is less than 5%. 

By comparison, 33% of people in Southern Asia have accounts with formal institutions.

And that's the real heart of the issue (for an investor and business writer, anyway). What this map tells me is that the potential for financial services expansion in Sub-Saharan Africa is enormous.

After all, the World Bank study referred to above considers a lack of access to financing a major hindrance on small business growth. Could more banks mean more new businesses, and more investment in existing ones?  

I certainly hope so. Another historical American study found that railroad development in the Midwest spurred financial development, and eventually greater economic growth. I could see the same thing happening in Sub-Saharan Africa. Either way, I'm certainly not the only one noticing this -- investment in the industry is increasing rapidly. 

So, it's a curious research finding, perhaps, but one that underscores the immense potential for business growth in another part of the world.  

To learn more, take a look at "Fertility and Financial Development: Evidence From U.S. Counties in the 19th Century" by Alberto Basso, Howard Bodenhorn, and David Cuberes.

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