Toddlers need savings accounts, too

Learning the basics of personal finance is not enough to secure your financial future, a new study shows. Instead, get a savings account, fast. Millennials who had experience with savings accounts are more likely than people with just a financial education to have money at the ready for emergency expenses, and they were less likely to rely on high-cost loans or have excessive debt, according to research from the University of Kansas. The findings suggest that parents could spend more time encouraging their children to use financial concepts in practice, not just learn them, says Terri Friedline, one of the report's authors. “The opportunity to put your knowledge into practice by having a financial product may help to move the needle in terms of financial outcomes,” Ms. Friedline said, adding that research suggests kids as young as five years old can start learning about savings. "They can learn and grasp financial concepts." For the analysis, researchers looked at how nearly 7,000 people ages 18-34 responded to a set of financial questions in a 2012 Financial Industry Regulatory Authority survey. The researchers categorized people based on whether they took personal-finance classes in college, in high school or at work, and whether they lived in households with a savings account. The study's analysts also controlled for a range of factors that might make someone more or less prone to financial problems, such as income, education level and employment status. People with a savings account and financial education were significantly more likely to have $2,000 set aside for emergencies than people who had only a financial education. Having both an education and practical saving experience also made young people less prone to taking out risky debt, such as payday loans. Just 41% of people with both an education and a savings account used these "alternative financial services," which are known for leaving consumers buried in mounds of intractable debt. More than half of people who just had a financial education used those services. Indeed, people with savings accounts who took finance classes were significantly less likely to say they carried too much debt than those with just an education.