An old-fashioned banking product that has fallen on hard times may be making a comeback with school kids.
Passbook savings accounts are the centerpiece of a pilot program being launched this fall by the Federal Deposit Insurance Corp., which is hoping to promote financial education and encourage children to save money.
Plain-vanilla savings accounts have long been opened by parents as a first step toward introducing children to the concept of saving. But since the accounts generate only a few pennies in interest each month, there’s not much of a wow factor for today’s more affluent and commercialized generation of kids.
And when it comes to instilling the savings habit, let’s face it, many parents aren’t great role models.
Those are attitudes the FDIC hopes to change with its schoolroom test.
Several months ago, the agency reached out to banks that have existing partnerships with schools to offer savings accounts to youths in conjunction with financial education programs. Some institutions have gone as far as opening in-school branches that are staffed for a few hours once or twice a week.
Dozens of financial institutions have expressed interest in participating in the test program for the current school year, said FDIC spokesman Greg Hernandez.
The agency expects to select five to 30 FDIC-insured institutions later this month to participate in the first phase of the test.
A second phase would be more widespread. The FDIC will begin soliciting interest in April for banks and other institutions to begin new school savings programs in the 2015-2016 school year.
The agency will closely monitor results, work out technical problems and help develop best practices going forward.
To get an idea of the potential impact of school and banking partnerships, consider the experience of fourth-graders in Amarillo, Texas, during the 2011-2012 and 2012-2013 school years. A local bank called HSB operated its Kids’ Bank program in about half of the district’s elementary schools.
Having a bank account “intensified the effect of financial education instruction for students,” according to a U.S. Department of the Treasury report on the Amarillo program. “And in schools where there was a branch, students had more positive attitudes toward banks and were more likely to have a bank account.”
The FDIC’s pilot program is good news to Sam Renick, a longtime advocate for financial education among young children.
“Combining financial education with the opportunity to save should prove powerful,” said Renick, of Los Angeles.
Even extremely low-rate savings accounts establish a “be prepared, asset-building mindset,” he said.
There are other advantages to developing the savings habit, Renick said. It teaches discipline and delayed gratification, encourages goal-setting, builds confidence and self-esteem, protects against poor spending choices and reduces cases of the gimmes.
And best of all, he noted, savings programs such as what the FDIC envisions “send a message to kids that their future is important.”