A significant share of young people in the United States are disconnected from the banking system. According to the Federal Deposit Insurance Corporation (FDIC), more than 76 percent of 15 - 17 year-olds are unbanked, compared with 50 percent of 18 - 20 year-olds and 36 percent of persons aged 21 - 23. Account ownership increases as teenagers transition into adulthood, but those who join the financial mainstream early are in a better position to realize far-reaching economic and developmental benefits. Evidence from the YouthSave Project indicates that access to financial education in conjunction with the opportunity to open a savings account can bolster youth financial capability. Research also suggests savings programs can yield a range of intangible benefits for young people, including important socioemotional development outcomes, such as improved psychological well-being (e.g., self-efficacy, self-confidence) and future-orientation.
In the United States, one approach for achieving greater youth financial inclusion has been through bank partnerships. Via school-bank relationships, financial institutions provide students with in-school financial education instruction and/or opportunities for banking services. According to the Department of the Treasury, such financial capability programs have been shown enhance financial knowledge, improve the attitudes of students toward banks, and increase the likelihood of students becoming account holders. Nevertheless, school-bank partnerships have yet to generate a significant amount of publically available information on how these relationships are initiated and managed. As a result, many financial institution have questions about how best to support youth savings initiatives.
Seeking to facilitate learning and exchange in this area, FDIC launched the Youth Savings Pilot Program. This two year project aims to highlight promising approaches for offering financial education in tandem with safe, low-cost savings accounts to school-aged children and youth. After two phases, the Pilot will conclude at the end of the 2015-16 school year. Phase I began the 2014-15 school year and will run through the 2015-16 school year. It included nine financial institutions that were already working with schools and nonprofits to help students open savings accounts in conjunction with financial education. In Phase II, the FDIC has invited the participation of twelve additional banks that are carrying out new or expanded programs during the 2015-2016 school year. Over the course of the Pilot, participants are connected with one another and technical assistance resources to identify, develop, and share best practices. Additionally, FDIC staff help Pilot participants troubleshoot implementation challenges.
Learning from the work of these 21 banks, Pilot practitioners at FDIC have concluded that there is no one-size-fit-all approach for school-bank partnerships. The strategies employed by participating financial institutions vary in size and scope. Programs have been developed and structured across the age spectrum from kindergarten to senior year. Some banks work with a particular class, while others work with a full grade or an entire school. Financial education is provided during independant instruction at some schools. Others schools incorporate it into an established course, such a social studies or math. Curricula differs from one program to the next, but some programs draw from FDIC’s Smart Money for Young People curriculum series.
At the event “Pathways to Development: Evidence from YouthSave,” Janet Gordon of FDIC noted: “[In the Youth Savings Pilot Program,] we have not prescribed a particular approach for banks. We are looking at different models across banks and will have a qualitative discussion with Pilot participants about which approaches are working and which are not working.”
So far, the FDIC identified four primary approaches taken by financial institutions to structure their partnerships with schools. Under the first approach, financial institutions have a branch within the school. Students receive financial education throughout the year and are encouraged to open a savings account at school and make deposits. In a separate model, banks use a common space within the school to set up a school bank on specified banking days. This structure is commonly used when banks are working with younger students between kindergarten and sixth grade. Some banks have opted to collaborate with schools to provide financial education during the school day but not to offer banking services. A final model is for financial institution to work with community organizations for provide financial education to youth (and perhaps their parents) and to encourage parents to open savings accounts on behalf of their children.
One reason so many different models exist for youth savings initiatives is that different regulatory environments exist in states. There is a lack of uniformity and clarity about when banks can open non-custodial deposit accounts for young people. Some states explicitly allow minors to open and hold deposit accounts. In other states, there are no specific state laws on the topic. Officials in these states rely on the general legal principle that minors do not have the capacity to enter into contracts. As a result, many banks may not feel comfortable offering minors non-custodial accounts. But, a major goal of the pilot is to release a guidance that outlines how youth savings programs can effectively be carried out while upholding the Customer Identification Program requirements and other regulatory expectations.
At the pilot’s end, FDIC is looking to expand youth savings programs that link financial education and access to savings accounts. As exhibited by YouthSave, such initiatives can facilitate positive financial habits and other important developmental outcomes. FDIC’s Youth Saving Pilot is a step toward this goal. Indeed, a dollar saved early can yield invaluable long-term benefits.