LAWRENCE — Children who own a savings account early in life are much more likely to have greater financial assets and positive financial habits when they grow older than those who don't. A University of Kansas professor has authored an article urging policy makers to establish early life accounts for all American children, to ensure kids whose parents don't have the financial means don't miss out on a vital piece of financial education.
Terri Friedline, assistant professor of social welfare at KU and a research fellow at the New America Foundation, released the report through the foundation. By ensuring all kids have savings accounts and begin learning about their value early, not only will they have more financial assets as they grow up, but they will hopefully be better-educated and less likely to fall victim to financial problems.
"I think it would be a great way to teach kids about the best financial products," Friedline said. "Kids and young adults will do the best with what they have and what they know, but they may not know about or have access to the best products out there, especially if they didn't have exposure to savings and related accounts early on."
In recent years, organizations such as the FDIC and U.S. Department of Treasury have begun to implement programs to ensure savings accounts and education are available for as many adults as possible. Friedline points to research showing that children as young as 5 or 6 are ready to begin saving and learning about the value of responsible financial behavior.
"Most of the financial inclusion work has been done with adults," Friedline said. "When it is done with kids, especially young kids, most of the time parents serve as the custodians of the accounts."
Friedline advocates for extending financial inclusion to children and ensuring education comes along with it. Legislation such as the America Saving for Personal Investment, Retirement and Education, or ASPIRE Act, has been introduced in Congress in the past decade, which could establish savings accounts at birth for all U.S. citizens. An initial deposit would be made, and depending on a family's income level, matching incentives could be made throughout the child's life as well. The assets could be used to fund college education or used for home purchases or retirement. The act has had bipartisan support but has not made it out of committee.
"We're still not exactly sure about the best way to design the accounts," Friedline said. "Part of our job as researchers is to provide evidence of what would work that policy makers could pick up and use."
KU researchers are helping provide such evidence by studying community-based programs offering matched savings for children and youth, as well as analyzing large national data sets to better understand the effects of assets on education. One recent finding from the work of Friedline and her colleagues at the KU School of Social Welfare is that children with savings accounts are as much as six times more likely to attend college than their peers who do not have savings.
Early life accounts could have benefits far beyond getting kids to college, Friedline said. Evidence is growing that savings accounts can help connect young people to financial institutions and prepare them for mortgages, investments like stocks and bonds, retirement accounts and more. It could also help young people gain solid financial footing as they become independent from their families.
Establishing the accounts for all children is also important because research shows that children are about twice as likely to accumulate savings above $500 when their parents have savings on their behalf. Of course, not all parents can afford to establish savings accounts.
"Savings accounts can act as a gateway to other responsible financial behavior and knowledge of financial products," Friedline said. "This can have a positive long-term effect."