Have you heard that having a savings account in your child’s name will increase their chances of attending college, graduating from college, having fewer student loans, and even improving reading and math scores?
According to Terri Friedline’s research (The Independent Effects of Savings Accounts in Children’s Names on their Savings Outcomes in Young Adulthood), individual research studies have shown evidence for each of these claims! But what does this mean for real life parents? Does it mean that opening a savings account in the name of your 3-year-old or your 13-year-old will instantly improve their math scores and set them up for success in young adulthood? Not necessarily. These findings show that there is a relationship between having a savings account for your child and having these outcomes, but not necessarily that one causes the other. Friedline found that a parent setting up an account in a child’s name or simply saving for the child in a special account both contributed to that child owning her own savings account when she is an adult. In fact, young adults were twice as likely to own a savings account when they had an account with their parents as a kid. This isn’t too surprising – parents who use banks and save money are more likely teach their kids that banking and saving is good, and they model this behavior.
The really interesting result was about the amount young adults had saved – the kids who had accounts in their own names had saved significantly more money in that account by the time they were a young adult, than kids whose parents may have saved for them, but didn’t have an account in the child’s name.
Friedman even concluded that “a child with a savings account may be more likely to enroll in or graduate from college. In turn, the child who enrolls in or graduates from college may be more likely to own savings accounts and accumulate assets. This combined evidence is an example of the potential compounding effects of having a savings account early in life…” In essence, creating a savings account in a child’s name has multiple positive effects. It may help that child learn to save money, take ownership of saving more money for herself, and feel like more resources are available for college. As a young adult, that child who received a strong financial start may be more likely to pursue her savings goals and build up a stronger account.
Magic bullet or not, we know that positive behavior is caught much more than taught – parents are modeling many behaviors for their children every day. Kids are watching and learning! So if you’re considering whether to open a savings account in your child’s name to help them get the best financial footing as a young adult, first take a look at your own money management and savings behaviors. Are you saving regularly for your goals? These goals could be saving for college, but they could also be more immediate, like paying down a debt or buying something you need around the house in cash instead of on credit. Get tips, strategies and savings ideas every week by becoming an Ohio Saver. And whether or not you decide to open a savings account for your child, please take the time to talk about money with them, today and tomorrow. Get tips on talking to your kids about money at Money As You Grow.