Makin' Money

How America shortchanges its kids about thrift

Chris Farrell Jun 17, 2011

Our guest blogger this week is Sheldon Garon, the Dodge Professor of History and East Asian Studies at Princeton University. He’s also the author of the forthcoming book, Beyond Our Means: Why America Spends While the World Saves.

It’s a global history of the last two hundred years ending in 2011. Many nations in Europe and Japan developed programs to encourage ordinary people to save. (So have the rest of East and Southeast Asia more recently). These programs included savings banks, postal savings banks, war savings programs, and the topic of his post–school savings banks. All of these programs developed in the U.S., as well, although often in weaker forms. Increasingly after World War II, U.S. policymakers promoted consumption and easy credit, rather than saving.

Sheldon Garon: Many older Americans recall participating in school savings banks in their youth. These programs originated as part of global currents more than a century ago. To mold habits of “thrift,” school savings banks sprang up in Belgium, France, Germany, and other European nations from the 1860s. Led by an impassioned Belgian immigrant, American educators began promoting school savings two decades later. Once a week students would bring in pennies and nickels; the sums were deposited in the bank after teachers recorded the amounts in each child’s passbook.

However, school savings banks never became as widespread in this country as they did in Europe and Japan, where schools worked closely with the ubiquitous postal savings banks and semigovernmental savings banks. In the United States, school programs depended on the public-spiritedness of commercial banks, few of which wished to incur the costs of handling tiny deposits.

Thrift education thrived mainly in those areas served by savings banks, whose mandate was to accept deposits from small savers. Witness the vibrant program in Minneapolis, where from the 1910s to 1950s the Farmers & Mechanics Savings Bank assumed the expenses of running the city’s school savings banks and dispatched female employees to collect the children’s deposits each week. If only, Garrison Keillor might lament, the whole country behaved like Minnesota. Prior to 1941, school savings banks remained confined to just a few states–notably New York, New Jersey, Pennsylvania, California, and the New England and Midwestern states.

It required federal intervention to expand the reach of school savings. At the height of World War II, the Treasury Department’s School Savings Program enrolled 200,000 schools nationwide, selling savings stamps that children pasted on a page until they could purchase a $25 war bond. Although many schools dropped out of the government’s program after the war, the 1950s witnessed an expansion of school savings banks in cooperation with local banks. Yet as before, few banks proved willing to accept students’ accounts, and school savings banks all but disappeared by the late 1960s. This is a pity because decades later one encounters New Yorkers or Minnesotans who insist that school programs started them on a lifetime of saving.

In Germany and Japan, school savings programs have been making a comeback. They now offer broader financial education curricula aimed at instructing young people about various financial products–savings and checking accounts, stocks, credit cards, and student loans. Financial education is also on the rise in the United States, but programs suffer from lack of coordination and problems of quality control. In Japan and elsewhere, government agencies play crucial roles in devising and disseminating the curricula.

Is there a reason why the newly created Consumer Financial Protection Agency could not do the same here? We might also encourage banks to offer special youth accounts with no minimum balances and interest rates that students can actually see. In Germany and France, for example, savings banks and postal savings banks offer above-market interest rates on student and other small-saver accounts. The U.S. is moreover behind other nations in permitting pre-college teenagers the freedom to make withdrawals from bank accounts and thereby learn financial responsibility. Americans pay little attention to how other nations promote small saving. This may be the time to start.

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