Thursday, May 22, 2014

Why students should open checking and savings accounts, and how to help

Why students should open checking and savings accounts...

According to the St. Louis Federal Reserve... "Having a checking and savings account is an important first step in establishing that the consumer has the financial acumen to apply for credit for a car or home. It also permits a consumer’s payroll check to be automatically deposited into a checking account, and lets the consumer arrange to have a specified amount automatically transferred to the savings account each pay period.

But, the key advantage to consumers having bank accounts is avoiding costly alternative financial services and enabling families to build and protect their wealth. Unbanked consumers spend approximately 2.5 to 3 percent of a government benefits check and between 4 percent and 5 percent of payroll check just to cash them."

Surprisingly, fringe banking services are widely used. Using my home state as an example...
•      19.3% of Ohio households are underbanked
•      8.8% of Ohio households are unbanked

How to help...

In the spring semester of 2013, I established behavioral goals for my students. Throughout the course, I sent 3-5 nudging text messages per week using remind101 to encourage students to:
Establish a savings goal
Establish a savings account at a bank or credit union
Contribute regularly to the savings account to meet that goal, ideally with a direct deposit

The results were compelling, so I approached America Saves and Budget Challenge with a proposal; broaden the practice and surveys to more students in districts across the country, use the America Saves text-messaging platform and resources to deliver the service, and pinpoint teachers to use for the experiment using Budget Challenge who are already integrating financial education technology in their classrooms.

America Saves, a campaign managed by the nonprofit Consumer Federation of America, seeks to motivate, encourage, and support low- to moderate-income households to save money, reduce debt, and build wealth. The research-based campaign uses the principles of behavioral economics and social marketing to change behavior.

Budget Challenge is a simulation seeking to teach the financial behavior, knowledge, and skill needed for young people to be Real-World Ready. They combine a ‘learning by doing’ approach with modern technology to create a positive educational experience that will foster life-long financial habits and relevant skills.

Students in the control and experimental group all received some form of formal financial education instruction in the classroom, and participated in Budget Challenge. Across the control and experimental groups, teachers represented a range of content knowledge, course delivery, and district mandates.

Teachers whose students participated in the experimental group either exhibited the grit necessary to work through the administrative obstacles presented for integrating texting into a class, or taught in districts who provided the freedom to do so. For a number of reasons, the effort of control group teachers to participate varied.

Students in the experimental group received up to 4 text messages per week for 6 weeks, were required to complete the America Saves Pledge, and encouraged in class and through text messages to…
Establish a savings goal
Establish a savings account at a bank or credit union
Contribute regularly to the savings account to meet that goal, ideally with a direct deposit.

Once again, the results were strong. Students who received financial education in the control group exhibited a variance of positive behavior change toward the stated goals. However, students who received nudging messages in addition to instruction received a much greater degree of behavior change.

As my friend Dan Kadlec of TIME reported in our project...

"Other organizations including the Consumer Federation of America through its America Saves campaign are also experimenting with texted advice for young people to save or budget. A growing body of research suggests such texted tips really work, and a yet-to-be-released small-scale study out of Ohio will bolster the case. This study will show that financial education leads to positive behavior change, and that when reinforced with regular text nudges teens up their money game substantially.

In the study by Brian Page, an Ohio schoolteacher and advocate for financial education, teens taking a financial literacy course raised the rate at which they identified a savings goal, opened a savings account, and deposited money in their account. The improvement accelerated among those who also got text reminders.

For example, the percentage of students who said they have a savings goal went from 64% before a money course to 69% after. In a group that also got text messages the rate went from 79% to 94%. 'In every case, financial education led to behavior change,' Page says. 'The nudging led to even more change.' Page hopes to do a more formal study on a national level."

With all of that said, what is most effective is to have a student run credit union or bank, as is the case in schools across the country.


  1. A good prepaid card offering these days has the same benefits/capabilities often for lower cost/fees. They're really just checking accounts in the cloud built on a more modern technology stack.

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  4. Of course it's important, as any other way of education or practice. Motivation and supervision are important so dramatic mistakes are avoided. I didn't get a specialized education, but I took a lot of information from blogs like and set savings goals higher and higher.