The New Money Math: Start Saving at Birth

The evidence is mounting: The time to start learning about money and saving for college is at birth.

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When it comes to pocketbook issues, there’s no substitute for an early start. The evidence is mounting all around us:

  • Saving for next month New research out of the U.K shows that our approach to money is basically set by age 7. Behavior experts David Whitebread and Sue Bingham of the University of Cambridge determined that money habits, including the ability to plan ahead and to delay gratification, are all but set by the second grade. After that, as parents and educators, we are trying to change beliefs rather than set them. It can be done, but it’s much more difficult. Reaching pre-schoolers by requiring them to save, earn and make little money decisions goes a long way.
  • Saving for college A pilot program in Oklahoma called SEED has found that kids who have money put away for college at birth are more likely to grow up seeing themselves as college-bound, work harder to get there and finish with less debt. Six years ago, the state pumped $1,000 into each of 40 new college savings accounts for infants born to low- and middle-income mothers. Despite the ups and downs of the balance over the recession years, these mothers report higher confidence that their child will go to college. Proponents now want to take the program national and establish a birth-to-college savings account for every newborn in the country. They believe the program will lead to more kids going to college and help solve the student-loan crisis.
  • Saving for retirement With pensions going bust and Social Security benefits likely to erode through our lifetime, young people must start saving for retirement before their very first job. Their single greatest advantage—and it’s a big one—is that they are young and have 50 years or more for their money to grow. But they need to understand that now. The advantage of time is fleeting. Say your child starts saving $150 a month at age 20 and her friend starts saving $200 a month at age 30. By the time both are 60 they’ll have invested identical dollar amounts: $72,000. But your child will have $372,827; her friend will have just $235,213 (assuming average annual returns of 7%). That difference is entirely due to compounding over the longer period.

The advantages of starting early in most things are fairly well known. But starting at birth to develop basic money attitudes and get a leg up on college, and saving for retirement before your first job, may come as a shock. Most of us haven’t done this. But we can at least get started now.