600 Kindergartners Were Given Bank Accounts 12 Years Ago. Here’s What Happened

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Starting to save at a young age can yield impressive results. Read on to learn more. 

For many kindergarten-aged kids, the only savings they have is a small collection of coins or bills stuffed into a piggy bank. But opening a savings account for your child when they’re young is one of the best things you can do for them. And if you’re not so convinced, here’s a story that might change your mind.

When kids are given a savings boost early on

In 2011, a San Francisco program targeting low-income families put $50 deposits into 600 children’s bank accounts. Now, 12 years later, members of that cohort have an average savings balance of $1,422, which is about 28 times that initial deposit, reports the Wall Street Journal.

Dubbed the Kindergarten to College Program, San Francisco’s initiative now gives $50 in savings to every student enrolled in its school districts and has 52,000 active enrollees with a total balance of $15 million. Of that, $10 million came from deposits made by students and their families.

The program has a dual purpose: to teach smart financial habits and serve as a start to college savings. And so far, it’s been replicated in 39 states due to its success.

Why it’s so important to help your kids save from a young age

Kindergarten-aged children are obviously too young to hold down any sort of job or take responsibility for their finances. That’s where you, as a parent, come in.

Those dollar bills your kids get from the Tooth Fairy? Your kids might enjoy stuffing them in a drawer and busting them out to go to the ice cream shop or candy store. But a much better thing to do for your children is to open a savings account for them and encourage them to keep their money in the bank.

There’s apt to come a point in time when your children become financially independent. And having a savings account to tap as an emergency fund could make that transition much easier.

Meanwhile, saving money in the bank at a young age will give your kids the opportunity to earn some interest on their deposits. Over time, that interest can add up, albeit modestly.

These days, some savings accounts are paying very generously, but the rates we’re seeing at present are not the norm. A better bet is to assume that your child’s bank account might earn an average of 2% interest over time.

Now, a single $50 deposit may not earn your children much interest. If you put $50 into an account at age 5, by age 18, that’ll grow to a rather unimpressive $65 if you’re only earning 2% a year. Rather, what you should try to do is open a savings account for your kids and push them to add to it as they receive cash gifts, whether from family members during the holidays or the magical fairy who rewards little ones for losing teeth.

In fact, let’s say your child is able to deposit $100 a year into their savings between ages 5 and 18. At 2% interest, you’re looking at a balance of $1,400. That’s a nice emergency fund to take to college.

Granted, in this case, most of that balance is coming from deposits, not interest. But the end result is the same — it’s a nice cushion.

The right habits are just as important as actual money

Making small deposits into a savings account for your kids during their childhood won’t necessarily make them rich. But ideally, it’ll get them into the habit of putting money into savings. And that’s just as important as them having a decent-sized balance by age 18.

One thing worth noting is that for college savings purposes, you don’t really want to stick to a regular savings account. You’re better off investing that money at what’ll hopefully be a higher return than what a bank account will pay you.

But if you have young kids with money lying around their bedrooms, have them round it up. Then take them over to a local bank and let them be a part of the process of opening an account. If you get your children excited about the idea of saving money from a young age, then chances are, they’ll continue to uphold that habit for many years to come.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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