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Exposure to banking at an early age can lead to long-lasting financial health

Starting early comes with positives

Photo (c) marchmeena29 - Getty Images
Money can be a stressful topic for many consumers, but according to a new study conducted by researchers from Iowa State University, getting a crash course at an early age could have life-long benefits.

The researchers discovered that when consumers are exposed to banking in their communities from an early age, the knowledge lasts with them beyond their childhood years.

“The fact that this has a lingering impact is important, because people don’t have a lot of control over where they grow up,” said researcher James Brown. “I remember growing up right across the street from a bank and going with my dad to open my first account. But a lot of people grow up in an environment where banks are not visible and it’s not as easy to connect to a financial institution at a young age.”

Getting a head start

To see how local banking affected consumers’ financial literacy later in life, the researchers explored credit history data for Native Americans living on reservations controlled by state courts and those living on tribal-run reservations.

In addition to credit scores and banking history, the researchers also surveyed those living on the reservations to assess their knowledge of typical financial matters and determine their feelings about banking and finances.

Reservations that are headed by tribes were found to have 20 percent fewer banks per capita than those that were controlled by the state, and the researchers believe that these findings can extend to other communities lacking banks.

The researchers found that exposure to banks led to strikingly different financial outcomes, as the residents on the tribal-led reservation had credit scores that were seven to 10 points lower than their counterparts. Participants on these reservations were also 20 percent less likely to have a credit report.

The researchers found that lower credit scores affected residents’ annual income by as much as $6,000.

Conversely, being exposed to banking at an earlier age pushed consumers to not only have better financial stability, but also have more trust in banks and the financial system at large. They found that high schools that mandate courses in financial literacy helped prep young people for their future finances.

Overall, the researchers emphasized that early exposure to banking plays a large role in where consumers can expect to see their bank accounts later in life.

“Exposure and trust go together,” said Brown. “If you grow up in an environment with more banks, you’re more inclined to trust banks and the financial system. If you grow up in a financial services desert, you’re much less likely to trust financial institutions, which may be one reason you don’t engage or you don’t pay back your credit card bills with the same frequency.”

Patience, patience, patience

Despite an overwhelming percent of consumers reporting their confidence in their finances for 2019, a study from last year found that 40 percent of adults don’t have enough money saved in case of an emergency.

“The finding that four in 10 adults couldn’t cover an unexpected $400 expense without selling something or borrowing money is troubling,” said Greg McBride,’s chief financial analyst. “Nothing is more fundamental to achieving financial stability than having savings that can be drawn upon when the unexpected occurs.”

Saving money can be difficult for a lot of consumers, and according to experts at Duke University, patience is the key. The researchers’ biggest piece of advice is that consumers should focus more on the reward that will come in the future as opposed to what’s lacking in the present.

“The way a decision is approached matters,” said researcher Dianna Amasino. “Focusing on the long wait to accumulate savings can feel overwhelming. Focusing on the returns to savings and investments can be motivating.”

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