When teens and young adults are given a savings account and the training and tools to manage it, most develop sound long-term savings habits, according to a study from the financial education campaign America Saves.
Researchers tracked workers ages 16 to 20 in youth employment programs across the country. These programs were part of the America Saves for Young Workers campaign, where they were encouraged to open a savings account with their first paycheck.
“We heard from a lot of kids that ‘everyone is telling me to save, but no one is showing me how to do it,’” says George Barany, director of strategic planning at America Saves. “They have a tremendous amount of vision and ambition.”
Barany says the organization was motivated to start the program after learning that a large number of young workers in Chicago were using check cashing services on payday rather than opening bank accounts.
Some 35% of the young people in the program were using a savings account before entering the program. But that rate jumped to 66% after the program, which copies an employer’s typical choice menu and allows for direct deposit, split pay, and automatic debits into a savings account. Two-thirds signed up for direct deposit, a key step toward automatic saving, according to the study. These findings echo earlier research from the San Francisco Fed.
Most of the young people kept their savings accounts and continued making deposits after the program ended, even though only 38% were still formally employed.
“It doesn’t matter how much you save, but you have to start doing it,” says Nia Hill, a freshman at Howard University, who served as a Money Mentor in a participating Chicago program. She worked with teens and young adults, many in their first job, encouraging them to open and manage savings accounts.
She was also did some saving of her own. By the end of the summer, Hill said she managed to put away $1,000 in an emergency fund. “It seems like a lot of money,” she says. “But it’s possible.”