Accumulating assets, debts in young adulthood: Children as potential future investors

Abstract

Child Development Accounts (CDA) aim to open savings accounts in childhood as a way to lay a foundation for building assets in young adulthood and beyond. Mainstream banks may be key partners in opening the accounts in which children can build assets. While children may have limited savings to invest initially, they may increasingly invest over time by accumulating assets and debts through mainstream banks. Mainstream banks may benefit from children's increasing investments. This paper uses propensity score weighted, longitudinal data from the Panel Study of Income Dynamics and its supplements to examine savings, assets, debt, and net worth accumulation of young adults and whether or not they accumulate more when they have savings accounts as children. Young adults accumulate a median of $1000 in savings accounts, $4600 in total assets, $965 in debt (excluding student loans), and $4000 in net worth (excluding student loans). Young adults accumulate more savings and total assets when they have savings accounts as children. They accumulate less debt and more net worth when their households accumulate high net worth. • Is there a rationale for providing children with small-dollar savings accounts? • We use data from the PSID to test whether children are potential future investors. • Children with savings accounts accumulate more assets in young adulthood. • Children accumulate less debt, more net worth when households have high net worth. • Banks may profit from children's future investments into savings accounts.