May 17, 2011
Young people–even as early as preschool and kindergarten–know that saving is a good thing. This knowledge is reinforced by subtle messages from families, friends, and media. Young people overhear families' conversations about money or watch their families make deposits into or withdrawals from savings during errands. They hear sayings like, "A penny saved is a penny earned," by Benjamin Franklin or read stories like, "The Ant and the Grasshopper," from Aesop's Fables, where a hardworking ant with good foresight saves up food for the winter while a foolish grasshopper finds out in hindsight that his idleness leads to his demise.
A recent article in the New York Times by Ron Lieber entitled, "Too Young for Finance? Think Again," and an accompanying video featuring Sesame Street's Elmo entitled, "Talking Money with Elmo," describes how Sesame Street and Elmo are putting a modern spin on the familiar message that saving is a good thing. In the video, Lieber interviews Elmo about saving, who decides to save his money for a toy instead of spend money on ice cream and talks about knowing the difference between when you want something and when you need something. Lieber's take-home message? It is never too early to teach young people (or Elmo) about saving.
Lieber's take-home message coincides with that of a group of researchers who have been testing the effects of young people's savings on a variety of outcomes. However, their message is slightly different and takes it one step further: It is never too early to help young people start saving. Researchers in Schools of Social Work across the United States, including the University of Kansas, the University of Pittsburgh, Washington University, the University of North Carolina, and the University of Michigan, are testing whether having savings early in life leads to improved outcomes later in life, while controlling for a variety of young people’s (i.e., race, gender), parents’ (marital status, education level), and households’ (i.e., income, net worth) factors. Research by William Elliott, PhD at the University of Kansas, for instance, finds that young people may have higher math scores and may be more likely to go to college when they have savings accounts in banks early in life. Some of my own research finds that having savings accounts in banks early in life may lead to continued saving and more money saved later in life.
There are two important differences and one notable similarity between Lieber's and Elmo's talk of saving and saving as used in research. First, research focuses on young people who save in bank accounts in their own names, whereas Elmo saves his money in jars at home. Second, research considers young people who save for long-term goals like college, whereas Elmo saves his money for short-term goals like toys. Third, like saving in bank accounts that allow young people to make withdrawals for needed expenses along the path toward their long-term goals, Elmo's saving in jars lets him designate money for different purposes and so he can make withdrawals for short-term goals. Here, it is notable that withdrawing money should not always be juxtaposed with saving or mistaken for the inability to delay gratification. At times, our understanding of delayed gratification related to saving, as eluded to in Elmo's tough decision to pass up ice cream, may be overly simplistic. No one would disagree that making decisions to spend now may affect the ability to save later. However, young people (especially those whose families have little financial resources to begin with) may make decisions to spend now for immediate needs like school clothes or field trips, which may be mistaken as being unable to delay gratification. Whether or not young people are able to meet immediate needs may determine whether or not they are able to save for long-term goals and think about future possibilities—what young people think is actually possible for them to do in the future—like college. Without the ability to meet immediate needs, young people may find themselves in a continual state of “catch-up,” trying to stay one step ahead without having the time, energy, or resources to save for long-term goals and think about seemingly unrealistic and far-off possibilities like college.
This leads to a few policy considerations for young people’s savings, which were recently articulated by William Elliott and colleagues in their review article, "Taking Stock of Ten Years of Research on the Relationship between Assets and Children's Educational Outcomes." Along with teaching young people about saving, it seems that extra effort should be made to help young people save in accounts at banks and to connect their savings for long-term goals with future possibilities. While young people most likely will not save enough to pay for these goals in their entireties, having accounts at banks and saving toward long-term goals may help raise beliefs about future possibilities. Furthermore, young people may need to withdraw money to pay for needed expenses that may otherwise deter them from seeing their goals as realities. For example, having savings accounts in their names may help young people from poor families believe college attendance is a possibility, even if their savings is only enough to pay for books or partial tuition. Perhaps just as important, young people working toward long-term goals like college attendance may be able to use their savings to pay for things like SATs or ACTs and college application fees.
The America Saving for Personal Investment, Retirement, and Education (ASPIRE) Act would make some of these considerations a reality. Modeled after international examples such as Singapore's Baby Bonus, EduSave, and Post-Secondary Education Accounts and the United Kingdom's Child Trust Fund, the ASPIRE Act would provide savings accounts to all young people with social security numbers beginning at birth and paired with intentional instruction about saving. As currently proposed, the ASPIRE Act would allow tax-free deductions after age 18, meaning that young people would not be able to make withdrawals for needed expenses. Despite this, under the ASPIRE Act all young people would be able to save for future goals. Even though the ASPIRE Act has enjoyed a history of bipartisan support, it has yet to be implemented. If we are truly invested in following the advice of Lieber and Elmo to teach young people about saving, we ought to take more seriously the policies and programs like the ASPIRE Act to help young people start saving.