Summarizing the Research: Why Early Savings Leads to Later Savings

In recent years, researchers and policymakers have offered up young people’s savings policies (e.g., Child Development Accounts [CDAs], the ASPIRE Act) as potential solutions for mitigating the effects of parents’ and households’ financial resources on young people's educational and financial outcomes. One question of interest is whether young people’s financial outcomes can be improved by extending access to basic financial services early in life. In other words, if you give someone a savings account in adolescence, do they maintain that account into young adulthood and beyond?

There are two theoretical perspectives that help explain why early savings might lead to later savings: an economic socialization perspective and an institutional perspective. The economic socialization perspective emphasizes the role the family plays in helping young people develop a saving habit and a future orientation (a characteristic commonly attributed to saving). Young people talk with their parents about the value of saving, they participate in household discussions about finances, and parents facilitate the process of opening savings accounts for young people. On the other hand, the institutional perspective points to inequalities in the institutions that serve families and young people to explain why some have savings accounts and others do not. For example, young people might need access to a bank that offers no-fee accounts and zero or low minimum opening deposit, easy transportation to the bank, and financial education about how to use their accounts. Young people that have savings accounts have been able to address these needs in one way or another and given income and wealth inequalities in the U.S., it likely that these young people come from higher SES households with more resources.

A recent study by William Elliott, Paul Webley, and Terri Friedline, Two Accounts for why Adolescent Savings is Predictive of Young Adult Savings: An Economic Socialization Perspective and an Institutional Perspective, tests whether adolescents' savings at ages 13 to 17 predicts their savings at ages 18 to 22. The complete research paper can be found on the Center for Social Development's website. The results of this study are summarized below and help inform whether an economic socialization perspective or an institutionalization perspective explains why early savings leads to later savings.

Study Design

Researchers used data from 694 adolescents and young adults that was collected by the Panel Study of Income Dynamics, a longitudinal dataset available from the University of Michigan. Variables in their study that represented the economic socialization perspective included whether or not adolescents received an allowance, future orientation, and parents' warmth in communication. They also included variables in their study that represented the institutional perspective, like household income, household net worth, parents' education level, and occupational prestige. Savings account ownership was included to determine whether savings in adolescence predicted savings in young adulthood.

To analyze the data, researchers used an advanced statistical technique called structural equation modeling (SEM). This technique allows researchers to test competing theories simultaneously, which is in contrast to commonly used regression techniques that test one theory while holding the other constant.

What Researchers Found

The Economic Socialization Perspective: Parental warmth was significantly related to adolescents' development of a future orientation (to a modest degree), which in turn significantly predicted young adults' savings.

The Institutional Perspective: Results indicate that early savings did indeed lead to later savings, as savings in adolescence significantly predicted savings in young adulthood. In addition, researchers found that parents' education level and household net worth significantly predicted savings among young adults.

What Does this Mean?

A main point from these findings is that if someone has access to a savings account in adolescence, they may likely maintain that account into young adulthood and beyond. This finding is informative for young people’s savings policies—it suggests it may be beneficial to encourage early saving and establish institutions (i.e., CDAs, the ASPIRE Act) that support saving.

In addition, researchers found some evidence for both theoretical perspectives. This means that either one theoretical perspective by itself is not adequate for explaining why young people continue to save. Rather, the authors suggest that each perspective can be a useful tool for understanding why young people save as well as helping guide policy development. Researchers suggest young people's savings policies that are able to incorporate both perspectives might be the most effective.

Things to Keep in Mind

Findings suggest interventions geared toward young people that extend early access to savings accounts may lead to continued saving throughout their lifetimes. As always, continued research is needed to best understand the relationships between theory (i.e., economic socialization perspective, institutional perspective) and young people's savings. Findings should be considered in light of a few caveats. Researchers used advanced statistical methods that allowed them to simultaneously test competing perspectives. However, this study was not a randomized controlled trial and results should be interpreted with this in mind. In addition, inertia may be another way to explain why early savings leads to later savings, an interpretation from a behavioral economics perspective. That is, it could be that young people continue to have savings accounts later in life because it is easier to keep them open than to put forth the extra effort to close the accounts. For more details, please read the full research paper available on the Center for Social Development's website.


Terri Friedline is the faculty director of financial inclusion at the Center on Assets, Education, and Inclusion, a research fellow at New America, and an assistant professor at the University of Kansas School of Social Welfare. She can be contacted by email at or followed on Twitter @TerriFriedline.