A groundbreaking new report by the Assets and Education Initiative at University of Kansas’ School of Social Welfare showed that children who are actively involved in maintaining a savings account are more likely to be better investors later in life.
"We found they were twice as likely to continue to have savings accounts and four times more likely to have invested in stocks," said study author, Terri Friedline, assistant professor of social welfare at KU. "We also found that if young people had a savings account as a child, they accumulated an average of about $2,000. Those who didn't have a savings account earlier in life only accumulated about $100."
The study, "Children as Potential Future Investors" is a three-part series based on data analysis from the Panel Study of Income Dynamics. Friedline tracked young people from 2002 to 2009, starting the study at age 17 and ending at age 23. She found that those who had savings accounts when they were young were more diversified with investments as adults and accrued more savings than those who never had a savings account during their youth.
External factors were taken into consideration including college attendance, employment, being raised in a single or dual parent household, income level and whether the child’s parents attended college.
"Holding for all of those things we found that the positive relationships between early savings accounts and financial outcomes held true," Friedline said in the report. "In the long run it shows young people were more likely to invest. We can begin to see the financial benefits of savings accounts opened just a few years earlier. Imagine what these effects could look like if accounts were opened in kindergarten."
One important aspect of Friedline’s report is the necessity of kid-based savings accounts. "We see down the road that young people are saving more and using other financial products," she said. "Even if banks have to think long-term, it might be beneficial to generate early relationships with customers who are potential future investors."
Credit Unions Favor the Youth Saver
If you are searching for a child-centric savings account that not only teaches financial habits, but also is engaging and fun consider your credit union first.
A vast number of credit unions not only offer tailor-made accounts for pre-school and elementary savers but also teens and young adults. For example, Cyprus Credit Union ($633.7 million, West Jordan, UT) has the Dollar Dog Kids Club for children under age 12, Cha Ching! for teens and The Edge designed for young adults. Each account is equipped with a unique website and custom products intended for each life stage. The credit union also offers a special Visa, created to provide high school students an entrance into building credit.
Additionally, many credit unions have launched in-school student run branches to further the financial lesson. Community Financial Credit Union ($500 million, Plymouth, MI) recently opened its 39th in-school, student run branch.
“The main goal is for students to get in the habit of saving money at an early age, so they don’t face the financial difficulties some adults are facing,” Michele Richards, CFCU’s program coordinator tells the Observer and Eccentric newspaper.
Teachers in CFCU’s footprint area back up what the credit union is trying to accomplish with students. Local economics teacher, Kim DelProposto told the Observer and Eccentric that hands on experience supports money management lessons. “It’s important they learn about saving and money management at an early age,” she said. “We’re excited to have this in the school and helping the students start those habits early.”