Children are Potential Future Investors who can and do Accumulate Savings

This is America Saves Week, which is an annual campaign that encourages nationwide discussion on savings and promotes good savings behavior. For those of us in the asset-building field, this is an opportunity to elevate research on the relationship between savings and life outcomes. This research can help justify the importance of good savings behavior, especially when these habits and behaviors start early in life. So in honor of America Saves Week, here are some of the research highlights from the asset-building field. Specifically, these highlights come from our research at the Assets and Education Initiative (AEDI) at the University of Kansas School of Welfare, where we are studying the relationship between children's savings and their financial and educational outcomes later in life.

Some of the reasons America Saves Week exists are to encourage people to open savings accounts and set savings goals. America Saves reports that only 66 percent of Americans have sufficient emergency savings and 42 percent say they are saving toward specific goals. According to the FDIC's report on unbanked and underbanked households, over a quarter of American households do not even have basic savings accounts at any given time. Taken together, these statistics suggest Americans need encouragement and support to develop good savings behaviors. Moreover, they need access to savings accounts at mainstream banks in order to make their savings a reality.  

Interventions to help Americans save—whether to increase emergency savings, set savings goals, or 'bank the unbanked'—are typically aimed at the household level. That is, research and programs like Bank On USA, the American Dream Demonstration, and Assets for Independence Act are geared toward helping adults connect to savings products and establish savings goals. In some ways, these programs take a reactionary approach to savings (or the lack of savings). However, as we have learned on numerous occasions from the health profession, prevention is perhaps the best medicine. Prevention suggests that the strategies to reduce or eliminate the problem should precede their potential for occurrence. (In other words, I would probably be better off by eating a low cholesterol diet and exercising before I have the heart attack, rather than afterward). If we want to reduce or eliminate the number of unbanked and underbanked households—particularly amongst households headed by racial and ethnic minorities or households with few financial resources—we should take lessons learned from prevention and introduce the strategy early in life.

Children as Potential Future Investors

Following this logic, one way to intervene and potentially improve adults' savings is by connecting them to accounts in childhood. That way they grow up banked—all the while learning about money, saving, and planning for and making future investments. Some of our research at AEDI provides preliminary support for the suggestion that connecting children with savings accounts early in life may be a way to improve savings in young adulthood and beyond.* Here are some of our main research highlights:

What types of accounts do young adults own?

• The most commonly owned assets by young adults are savings accounts (89 percent), vehicles (54 percent), and credit cards (51 percent).
• Smaller percentages of young adults own stocks (9 percent), bonds (6 percent), and homes (8 percent).
• On average, young adults own two to three different types of assets.
• Ninety-four percent of white young adults own savings accounts compared to 71 percent of black young adults—a 23 percentage point gap.
• Twice as many white young adults own credit cards, stocks, and vehicles compared to black young adults.
• Ninety-seven percent of young adults from high-income households own savings accounts compared to 71 percent of young adults from low-to-moderate-income households—a 26 percentage point gap.
• Two to three times as many young adults from high-income households own credit cards, stocks, and bonds.
• Ninety-seven percent of young adults have savings accounts when they had accounts as children, compared to only 69 percent of young adults who did not have savings accounts as children—a 28 percentage point gap.

How much savings do young adults invest into their accounts?

• Young adults accumulate medians of $1,000 in savings accounts, $4,600 in total assets, and $4,000 in net worth (excluding student loans).
• When student loans are included, young adults accumulate a median of $300 in net worth.
• White young adults accumulate medians of $1,668 in savings, $6,000 in total assets, and $4,990 in net worth (excluding student loans).
• Black young adults accumulate medians of $300 in savings, $1,000 in total assets, and $40 in net worth (excluding student loans).
• Young adults from high-income households accumulate medians of $2,049 in savings, $7,000 in total assets, and $6,500 in net worth (excluding student loans).
• Young adults who had savings accounts as children accumulate medians of $1,900 in savings and $5,025 in total assets greater than their counterparts without savings as children.

Do young adults diversify their account holdings and invest significantly more savings into their accounts when they have savings accounts as children?

• Young adults are two times more likely to own savings accounts, two times more likely to own credit cards, and four times more likely to own stocks when they have savings accounts as children, compared to those who did not have accounts as children.
• Young adults own significantly more savings, total assets, and in some cases net worth when they have savings accounts as children, compared to those who did not have accounts as children.

* Note: Most of this research looks at young adults’ savings outcomes when they are between the approximate ages of 22 to 25. Most of this research measures their savings account ownership in childhood when they are between the approximate ages of 15 to 19. Details of the data, methodologies, samples, and findings are available upon request.