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A developmental perspective on children's economic agency.

Understanding children's development is critical in the midst of efforts that teach children about money and open savings accounts for them early in life. These efforts are delivered at a time of extensive developmental change, yet with limited attention to this context. Through a review of research, this study unveils the ages at which children may be able to save and to use savings accounts--specific aspects of economic knowledge and behavior--based on cognitive, social, and linguistic development. Children are developmentally capable of saving by age five or six. Children's developmental gains at this age may prepare them for the gains they make in economic knowledge and behavior. Implications are discussed with regard to policy efforts like Child Development Accounts (CDAs) that open savings accounts for young children and encourage saving behaviors. CDAs should take development into consideration if children are to use their accounts for their benefit.


The last decade has seen increasing efforts to open savings accounts for children. In 2003, a national demonstration--Saving, Education, Entrepreneurship, and Downpayment (SEED)--automatically opened specially designed savings accounts called Child Development Accounts (CDAs) for children age birth to 23 around the United States to determine whether children were capable of using savings accounts and saving (Sherraden and Stevens 2010). An average of $1,500 was accumulated in these accounts over three years (Sherraden and Stevens 2010), (1) providing some indication that children were capable of saving. The San Francisco Unified School District began opening savings accounts for all kindergarteners in 2010 in a program called Kindergarten to College (K2C). In 2014, Maine became the first state to automatically open 529 college savings accounts for all newborns at birth with a $500 initial deposit (Clancy and Sherraden 2014). These efforts are geared in part toward teaching children about money and finances and helping them save, especially for those living in poverty. The CEO of the Citi Foundation articulated the importance of opening accounts for children living in poverty, "Our goal is to dramatically increase the number of first-generation students--and those from low- to moderate-income families--who obtain a college degree, while also bringing their families into the financial mainstream ..." (Corporation for Enterprise Development 2011).

These efforts are all delivered at a time when children are experiencing extensive developmental change, yet with limited attention to this context. As children grow, they make cognitive (Scheinholtz, Holden, and Kalish 2012), social (Friedman and Neary 2008), and linguistic (Wynn 1992) developmental gains that may be essential for using savings accounts and performing saving behaviors--important aspects of economic knowledge and behavior. An understanding of children's developmental capabilities (2)--what children are able to do cognitively, socially, and linguistically--is critical in the midst of growing efforts to teach children about money and finances and to open savings accounts for them early in life (Lusardi, Mitchell, and Curto 2010; Sherraden 2013). Through a review of research, this study characterizes children as economic agents who are capable of using savings accounts and performing saving behaviors and unveils specific ages at which children may acquire these capabilities based on developmental gains. While developmental gains are hypothesized to relate to children's use of savings accounts and performance of saving behaviors, research has not explicitly tested these finks.

There are several reasons why savings accounts and saving behavior should be explored as aspects of children's economic agency. First, as aforementioned, efforts to open specially designed savings accounts for children are increasing (Cramer 2010). These savings accounts are designed to facilitate children's long-term savings toward educational, entrepreneurial, or retirement expenses--a more specialized financial product compared to a piggy bank or even a savings account at a mainstream financial institution. Second, while developmental explanations of consumer socialization and personal finance have been articulated (Shim, Serido, and Barber 2011; Shim etal. 2013), these developmental explanations have not been articulated for savings accounts--a specific financial product with unique benefits for educational and economic well-being (Assets and Education Initiative [AEDI] 2013). Third, consumer socialization emphasizes consumption that is broadly defined to include children's understanding of the social significance of products, markets, and pricing (John 1999; Shim, Serido, and Barber 2011). However, consumer socialization focuses on children as spenders while failing to also consider them as savers. Fourth, saving is relevant in an era encompassing the Great Recession that has questioned the sufficiency of households' savings and assets (Taylor etal. 2011) and knowledge to make economic

decisions (Lusardi, Mitchell, and Curto 2010). There is reason to believe savings accounts relate to the economic knowledge and behavior that children exhibit as adults. Children with savings accounts are more likely to hold diverse asset portfolios and to accumulate more savings as young adults, compared to those without accounts (Friedline, Johnson, and Hughes 2014). Children who grow up with accounts may also use financial products more often, save more money, and make more informed economic decisions.

This study begins by characterizing children as economic agents whose use of savings accounts and performance of saving behaviors are worthy of attention. This is followed by a review of research identifying gains in children's use of savings accounts and performance of saving behaviors as aspects of their economic knowledge and behavior. Research on children's cognitive (Scheinholtz, Holden, and Kalish 2012), social (Friedman and Neary 2008), and linguistic (Wynn 1992) development is reviewed to explore how gains in these developmental domains correspond to and explain in part children's concurrent gains in economic knowledge and behavior. A preliminary framework establishes the relationships between children's development and economic agency, while discussing the role of poverty in shaping these relationships. This study concludes with implications for research and policy.


By definition, an agent refers to a person that exerts or is capable of exerting a behavior to produce an outcome (Bandura 2006). Following this logic, an economic agent refers to a person that exerts or is capable of exerting a behavior to produce an economic outcome (Dopfer 2004), like saving to accumulate sufficient assets for use in an emergency or spending to pay the most recent utility bill. This definition assumes that an economic agent acquires knowledge that can be used to produce economic behavior. For example, an economic agent who accumulates assets for use in an emergency likely has some knowledge--even if at a basic level--about the consequences of unexpected economic shocks for affording basic needs. While a related concept, economic agency is distinct from financial capability (Sherraden 2013). Sherraden (2013, 20) defines financial capability as the simultaneous "ability to act and the opportunity to act," with "ability to act" referring specifically to a person's financial knowledge. Here, economic agency refers to whether or not a person's knowledge and ability to act is developmentally possible; whether or not a person has opportunities to acquire knowledge and take action is another matter.

Adults are widely considered to be agents capable of behaving in ways that produce effects on economic outcomes (Smith, McArdle, and Willis 2010), although debate remains about whether adults have the knowledge or ability to perform these behaviors optimally (Merigo and Gil-Lafuente 2010; Samanez-Larkin, Wagner, and Knutson 2011). Much research focuses on adults' economic agency in part because it is taken for granted that adults are capable of acquiring economic knowledge and exerting economic behaviors. Adults are assumed to be employed and to have a regular income from which they can save (Modigliani and Brumberg 1954). Adults are also assumed to have the developmental capabilities needed to, and the resources over which they can, exert agency.

Less attention is given to children's economic agency because it is not widely understood as of when children possess the capabilities to acquire economic knowledge or produce economic behaviors. Moreover, families teach and encourage children (John 1999; Shim, Serido, and Barber 2011), providing a context for and serving as gatekeepers of children's economic agency by restricting or facilitating their economic knowledge and behaviors. For example, some families may teach their children the importance of saving in an account at a bank and provide them with opportunities to save, whereas other families may not (Friedline, Elliott, and Chowa 2013). In part for these reasons, children's economic agency comes into focus once they reach milestones that reflect greater independence from their families, like learning how to drive, earning their first paycheck, or accumulating debt (Bell et al. 2007; Shim, Serido, and Barber 2011). These milestones indicate that children's developmental capabilities may be mature enough for acquiring knowledge and producing behaviors apart from their families; however, these milestones often do not occur until adolescence and young adulthood. Focusing on economic agency in adolescence or young adulthood may miss crucial and earlier opportunities when children are developmentally capable of economic agency.

From a young age, children acquire economic knowledge like recognizing monetary values of coins or comprehending the role of banks for saving and engage in economic behaviors like saving coins in jars and establishing saving goals (Berti and Bombi 1981; Strauss 1952). As such, their economic knowledge and behavior are worthy of attention if efforts to teach them about money and finances and to open savings accounts for them are to be successful. The following section describes the development of children's economic agency.


Developmental gains are believed to shape children's acquisition of economic knowledge and behavior (Berti and Bombi 1981; Jahoda 1981; Ng 1983, 1985; Sonuga-Barke and Webley 1993). That is, children learn to recognize and categorize coins in phases just like their acquisition of knowledge about saving and spending, profit, and interest rates (Furnham 1999; Otto et al. 2006). Findings from this research--specifically related to developmental gains in children's capabilities to use savings accounts and employ saving behavior--are summarized in Table 1.

Findings from studies conducted by researchers over several decades confirm that children acquire economic knowledge and demonstrate increasingly sophisticated economic behavior in phases or milestones that are detectable at age five or six, eight or nine, and 11 or 12 (see Table 1) (Otto et al. 2006; Sherraden et al. 2011; Sonuga-Barke and Webley 1993; Webley and Plaisier 1998). (3) Children at age five or six conceptualize banks mostly as a place for storage or may even consider saving in a bank as synonymous with losing money, whereas children closer to and older than age 12 have the capabilities to see banks as a way to save and invest their money (see Table 1) (Sonuga-Barke and Webley 1993). Young children's nebulous understanding of the bank--an abstract institution with which children have very little direct experience--may be due in part to their inability to integrate separate and abstract economic concepts. Researchers have also pointed to children's developmental gains in economic behavior like saving (Otto et al. 2006; Sherraden et al. 2013). Notably, gains in economic behavior coincide with their gains in economic knowledge. For example, in a game scenario in which children must save a certain number of tokens to purchase a toy, children at age 12 employ behaviors like saving in the bank or calculating expenses in advance to purchase successfully the toy more often than their younger counterparts (Sonuga-Barke and Webley 1993). Children at age five or six also employ saving behaviors, although their behaviors are less sophisticated and meet with success less often.

This should not be taken to mean that children prior to age 12 lack the knowledge or developmental preparation to save (see, e.g., Elliott et al. 2010; Sherraden et al. 2013). Early opportunities to save may make use of an important time in children's development by influencing them when their knowledge and behavior may be most impressionable (see Bruck and Ceci 1999; Scullin and Ceci 2001 for information about young children's impressionability). Taken together, children may make notable developmental gains in their knowledge and behaviors and may move through developmental phases or milestones more quickly when they have early experiences with money (Ng 1983, 1985). For instance, the I Can Save savings program included children who were approximately five and six years of age (Sherraden et al. 2007), which is consistent with the age of initial developmental milestone identified by economic psychologists (Sonuga-Barke and Webley 1993). Children in the I Can Save treatment group received savings accounts, incentives to save, and economic education (Sherraden et al. 2007). These children demonstrated interest in and articulated economic knowledge about money and saving more often than children in the comparison group. Moreover, children in the treatment group saved an average of $8 per month (4) over a two-year period with the help of their parents. Children may be capable of using accounts as a saving strategy if given these early opportunities.

Despite widespread agreement regarding children's developmental gains in economic knowledge and behavior, less research has articulated or explored the mechanisms behind these gains. A savings account has no discernible size or shape by which it can be categorized. At what age and through what processes might children be able to use savings accounts and employ saving behaviors? Answers to questions such as this require an understanding of children's development and may shed light on their economic agency.


Now that developmental gains in economic knowledge and behavior have been identified, research on cognitive, social, and linguistic development can be reviewed. It can be challenging to distinguish between these developmental domains given their interrelatedness. Aspects of cognitive development are clearly found in social and linguistic development and vice versa. However, these classifications help to organize the research on child development. Generally speaking, developmental gains at age five or six, eight or nine, and 11 or 12 correspond with gains in economic knowledge and behavior. (5) Gains made at specific ages are flexible and fluid (Spelke 2000). In other words, development operates along a continuum and ages are not intended to be rigid boundaries; rather, ages represent frames for guiding our understanding about when major developmental shifts or milestones are observed.

Gains in development progress parallel to one another and become integrated over time, with later gains building sequentially on previously acquired gains: early development is fundamental for later development. For example, children at age five may develop the cognitive ability to focus on observable, concrete aspects of objects (i.e., shape and color) and the linguistic ability to use hypothetical speech (i.e., if, then ... statements). However, these abilities may be dissociated from each other despite being interrelated (Senn, Espy, and Kaufmann 2004); children's concrete understandings of the world have not yet been integrated with their ability to think and speak hypothetically. Asking a young child if they will roll up the windows on a motorcycle when it rains may produce confused and inquisitive facial expressions. The child may be able to observe that motorcycles do not have windows and they may have an emerging ability to use hypothetical speech; however, they may not be able to simultaneously integrate these abilities to explain why they will not roll up the windows on the motorcycle. Over time, children make links between and synchronize these developmental processes (Fischer 1980), eventually using their cognitive and linguistic abilities to explain that motorcycles do not have windows to roll up when it rains. Something similar may be taking place when young children do not like to make deposits into savings accounts because they consider depositing money as synonymous with losing it. For children who adopt this interpretation of deposits, it may be that their cognitive, social, and linguistic development has not yet been integrated for helping them to interpret deposits as protecting their money. Table 2 summarizes the domains of child development described below.

Cognitive Development

Cognitive development is the process by which children acquire conscious thought, memory, problem-solving and goal-setting abilities, attention, inhibitory control, and intelligence (Best and Miller 2010). Cognitive development is guided in part by executive functions that are located in the brain's prefrontal cortex. These executive functions, although related, are distinguishable and form the bases of children's decision making and self-regulating behaviors (Marsh et al. 2006; Miyake et al. 2000). It is beyond the scope of this review to discuss all executive functions; however, cognitive flexibility and memory are discussed given that they may bear on the development of economic agency. Cognitive flexibility--the ability to think abstractly--may relate to children's acquisition of economic knowledge pertaining to coins, savings accounts, and banks. As children develop the ability to think abstractly, they may simultaneously develop the ability to more accurately identify coins and understand the purposes of savings accounts and banks. This may explain how children evolve from considering their deposit into a savings account as losing money to helping protect their money. The first consideration is a very concrete explanation of deposits (i.e., the deposit literally appears to have disappeared), whereas the latter is a more abstract explanation. Working memory--the mental capacity for storing and retrieving information--guides behaviors and may relate to children's performance of economic behavior like saving in the bank or calculating expenses in advance of purchases. Previous research has provided cognitive explanations of adults' economic agency, including saving in experimental games (Ballinger et al. 2011), averting risk (Benjamin, Brown, and Shapiro 2013), and taking on debt (Mullainathan and Shafir 2013). Table 2 summarizes children's development in these areas.

Cognitive Flexibility

Research on cognitive flexibility helps to explain why children may initially only focus on single dimensions of objects--like color or shape--and eventually focus on the multidimensionality of objects. Flexibility, or the ability to perseverate, refers to children's ability to switch back and forth between and to simultaneously think about several dimensions of an object (Zelazo 2004), which can be understood as children's ability to focus on single or multiple dimensions of objects. For example, physical size and monetary value represent two dimensions of coins. Until children develop the ability to think simultaneously about coins' physical sizes and monetary values and understand that these dimensions are unrelated, they may struggle to sort coins based on their value (Strauss 1952). In other words, they sort nickels as being worth more than dimes based on the coins' physical sizes. Children can accurately switch from sorting coins by their size to sorting coins by their value once they develop the ability to perseverate. Young children may find it especially difficult to readjust if a rule changes or becomes abstract (from size to value) (Zelazo et al. 2003), as evidenced by repeating behaviors that were guided by a previously defined rule even after they have been clearly instructed to switch to a new rule. Young children under age four who were first asked to sort a set of cards by their picture fail to subsequently sort the same cards by color (Zelazo 2004). Improvements are detectable between ages three

and four; however, children make continued improvements at age eight or nine and 11 or 12 (see Table 2) (Brace, Morton, and Munakata 2006; Crone et al. 2004). Failures of perseveration--especially among young children--may be due to limited working memory capacity (Zelazo 2004). Like the studies that find that adults have limits on their cognitive capacity (Banerjee and Mullainathan 2008), children also appear to have limited capacity for storing information.

Working Memory

Working memory refers to the process of storing and retrieving information to guide behavior during activities (Luciana and Nelson 1998), with improvements evident as working memory gains processing capacity (literally referring to mental space, like the processing capacity of a computer) (Hitch 2006; Luciana and Nelson 1998). As such, working memory relates to children's attention and conscious effort that are needed to carry out behaviors (Passolunghi and Siegel 2001). Researchers observe working memory through tasks such as sorting cards, matching objects, or reproducing a sequence of objects. Working memory becomes increasingly effective and efficient after approximately age eight or nine (see Table 2) (Gathercole and Pickering 2000; Towse, Hitch, and Hutton 1998). In a series of experiments with 181 children, five-year-olds significantly outperformed four-year-olds on working memory tasks (Luciana and Nelson 1998). At about age eight, children's use of working memory emulated that of adults; however, researchers found that this was mediated by task difficulty (Luciana and Nelson 1998). Taken together, children at age five can employ working memory to carry out simple behaviors with similar successes as those of adults. By age eight, their working memory can be employed to carry out more complex behaviors, although their working memory may still fail on difficult tasks. Thus, children at age five or six may be capable of performing simple behaviors such as choosing a saving goal or making deposits into an account. Such behaviors increase in sophistication as they grow older (Sonuga-Barke and Webley 1993). Around age 11 or 12, children may be capable of calculating potential future savings account balances and adhering to regular deposit schedules.

Social Development

Social development explores how children relate to objects and other people (Friedman and Neary 2008). Here, social development focuses on children's social competence and ownership over objects and ideas. Social competence and ownership may be relevant for economic agency because development in these areas helps children to make sense of the world around them, allowing them to interpret their economic knowledge and behavior. Ownership--control over an object or idea--may help children to integrate objects or ideas into their selves, including savings accounts. Objects integrated into the self can form the basis for identity development and future expectations (Belk 1988; Friedline 2014). Children who have savings accounts opened in their own names, have opportunities to use their accounts, or know they are the beneficiaries of accumulated savings may be able to identify themselves as account owners and consider the accounts part of their selves. Social competence--effectiveness of various social capabilities developed through interactions with others and the environment--guides children's understandings of relationships and social norms and achievements of social goals (Rose-Krasnor 1997). Social competence may also help children to develop their identities, eventually shaping how they use economic knowledge and act out economic behaviors (Baron and Markman 2003). Taken together, social competence and ownership may relate to children's identities and expectations, both of which relate to saving behavior (AEDI 2013). Table 2 summarizes children's social development and is used to highlight identified gains in ownership and social competence.


Research on children's ownership is discussed here because ownership is a social construction that often requires interpreting multiple points of view and negotiating with others (Blake and Harris 2009; Noies and Keil 2011). In some instances, ownership is described as being formalized through a legal process (Etzioni 1991), like the process of owning a savings account. A legal document, such as bank paperwork filled out to identify the owner with a Social Security number, ties account ownership to an individual and can be disputed in a court of law. In other instances, ownership is described as a psychological process (Van Dyne and Pierce 2004; Furby 1980), like feeling and perceiving that a savings account belongs to the owner even though they do not always make deposits or investment decisions. Researchers have tested possession of objects or ideas as principles of ownership. Much of the research using samples of children examines the first possession heuristic--whether or not children assign ownership to an object or idea based on who they perceive to have possessed it first (see Table 2) (Friedman 2000; Friedman and Neary 2008). In one experiment (Gelman, Manczak, and Noies 2012), children of all ages preferred toys that they identified as their own, even if their toy was seemingly undesirable. Children have also been found to apply ownership to ideas (Shaw, Li, and Olson 2012). In another experiment, 20 children between ages six and eight were given two scenarios, the first of which asked about object possession (two boys catching a fish) and the second of which asked about idea possession (two boys solving a math problem) (Shaw, Li, and Olson 2012). Children applied the first possession heuristic to solving the math problem in the same way as catching the fish. Children--especially young children--may infer ownership of savings accounts to themselves if savings accounts are opened in their names and perceive that the accounts belong to them (AEDI 2013). This might in part explain why savings accounts opened in children's names produce effects on educational and economic well-being that are unique from accounts in which parents save on children's behalf (Friedline 2014).

Social Competence

Social competence incorporates a diverse set of capabilities such as interpreting multiple points of view, regulating emotions and behaviors, and solving problems that children apply to and refine during interactions with families, peers, and their environment (Denham et al. 2003; Rose-Krasnor 1997). While social competence refers to a broad set of capabilities, these capabilities are closely linked to what has been referred to as theory of mind (Miller 2012). Theory of mind has been used to explain children's social competence (Jenkins and Astington 2000). Like other aspects of development, children achieve gains in social competence at notable ages (see Table 2) (Howes 1987). Children at age five or six struggle to recognize others' points of view and generally do not make comparisons with others (at least not in the same ways as adults) (Slaughter, Peterson, and Moore 2013), whereas children at age eight or nine are able to recognize multiple points of view. However, children at age eight or nine attribute multiple points of view to differing information rather than opinions and motives (Barenboim 1981). At age 11 or 12, not only are children aware of and able to understand others' points of view, they can also relate to and refine their emotions and behaviors based on those views and do so with greater ease (Howes 1987). Moreover, children at age 11 or 12 can associate points of view as belonging to social norms (Denham et al. 2003; Rose-Krasnor 1997). Consider, e.g., two five-year-old children who play together with a jump rope on the playground. The pair negotiates taking turns, regulates their emotions, solves disagreements, adjusts their behavior accordingly, and respects the rules of the playground. Their application of social competence becomes more sophisticated and automated as they grow older and they pool information from previous experiences, environmental contexts, and social norms. While much of the current research focuses on the relationships between social competence and peer relationships and school achievement (Alduncin et al. 2014; Caputi et al. 2012), social competence may also be relevant for economic agency via identity development. Oyserman and Destin (2010) write that identities are formed in part through connections with others and with the environment. Skills developed through these connections--interacting with others, recognizing multiple points of view, solving problems, and integrating information from the environment--may shape identities and future expectations. Children's identities are relevant for economic agency because children may be more likely to use savings accounts and engage in saving behavior when they identity as a saver (AEDI 2013).

Linguistic Development

Linguistic development describes language formation and how other developmental domains are expressed through language (Wynn 1992). Linguistic development corresponds with children's monetary awareness (Berti and Bombi 1981), meaning that young children simultaneously develop abilities in numeracy, hypothetical speech, and use of verb tense that match their ability to count and identify coins. Numeracy--counting and understanding numbers--represents children's ability to perform basic calculations and has been linked with economic knowledge and behavior (Almenberg and Widmark 2011). Hypothetical speech--using words that quantify and represent conditional and counterfactual thinking--is a linguistic production of children's cognitive abilities to engage in abstract thought and reasoning (Minai et al. 2012), abilities that, as aforementioned, may be needed to use savings accounts and perform saving behaviors. Use of tense--distinguishing between time order of events through verb tenses--relates to how children think about and plan for the future (Friedman 2000). Thinking about and planning for the future have been linked to saving (Friedline, Elliott, and Nam 2011), and recent research explicitly connects use of future verb tense and saving behavior. Speakers of languages whose verb tense does not distinguish between present and future save more money, compared to speakers of languages whose verb tense does distinguish present and future (e.g., "she goes to school tomorrow" vs. "she will go to school tomorrow") (Chen 2013; Sutter et al. 2013). Thus, linguistic capabilities may inform children's economic agency. Table 2 summarizes children's linguistic development and is used to highlight identified gains in numeracy, hypothetical speech, and use of tense.


Numeracy refers to children's abilities to verbally count and to understand numbers in relation to one another (Aunio and Niemivirta 2010; Condry and Spelke 2008). At first, children count as part of a recitation of numbers. Children at around age two can recite out loud and from memory numbers one through ten in chronological order; however, they struggle to spontaneously verbalize, e.g., the number four when asked to say the number that follows three (Condry and Spelke 2008). This suggests that young children have not yet developed relative understandings of numbers despite reciting numbers accurately. By age five or six, children can identify and spontaneously verbalize the appropriate number (see Table 2) (Wynn 1992). The development of numeracy is relevant given that early numeracy relates to math achievement scores (LeFevre et al. 2009; LeFevre et al. 2010), and math achievement scores relate to economic knowledge and behavior (Almenberg and Widmark 2011; Kim, LaTaillade, and Kim 2011). Moreover, development in numeracy allows children to perform basic calculations--a capability useful for making deposits into accounts or recording their savings balances (Almenberg and Widmark 2011).

Hypothetical Speech

Flere, hypothetical speech refers to the use of quantification words such as some, or almost and conditional (if..., then...) and counterfactual statements (if not..., then...) (Beck, Riggs, and Gorniak 2009; Minai et al. 2012). Reflective of children's cognitive development, hypothetical speech demonstrates children's abilities for abstract thought and reasoning. For example, hypothetical speech may relate to children's capability to save some of their money as opposed to all or none. While research on the relationship between hypothetical speech and saving behavior among children is still needed, the relationship may not be far reaching given that young children in savings games use strategies of saving all or none of their money, as compared to older children who save some of their money (Otto et al. 2006; Sonuga-Barke and Webley 1993). Children develop an emergent ability to use hypothetical speech at the age of five or six (see Table 2) (Kuczaj and Daly 1979). For instance, successful application of the word every exemplifies increasing cognitive control because the successful application suggests children can view, interpret, and describe a scenario using words like some and most (Wynn 1992). Accurate use of such words may linguistically represent children's ability for abstract thought and reasoning. While accurate use of words like every is evident at age five or six (Kuczaj and Daly 1979), accurate use of conditional and counterfactual statements emerges around age seven (Braine and O'Brien 1991; McCabe et al. 1981).

Use of Tense

Children's use of past, present, and future verb tense speaks to the ability to identify how and when events occur and emerges around the same time as hypothetical speech (see Table 2) (Suddendorf and Busby 2005). Children are capable of using tenses to differentiate the past and future from the present at age four or five (Friedman 2000, 2002, 2005; Friedman and Kemp 1998). A series of experiments by Friedman (2000) examined children's ability to identify when events occurred by asking them to locate birthdays and holidays on a picture, "Will it happen very soon, a very long time from now, or an in-between amount of time from now?" Five-year-olds were more accurate than four-year-olds in using future tense to locate events. By age eight or ten, the ability to identify and use tense was fully developed. In many ways, saving is considered to be a future-oriented behavior that requires some understanding of verb tense. Chen's (2013) research on language and saving suggests that use of future verb tense might correspond to beliefs about the timing of events, making people less likely to save or to put off saving until tomorrow. In a sense, young children's underdeveloped use of tense may predispose them to save now for the future. A child at age five who cannot yet verbalize what it means for college to be 12 years away might also not grasp why they should not have immediacy in saving for that future expense. In contrast, an older child at age 11 or 12 who knows what it means for college to be several years away may decide to put off saving.


A framework is presented to specify the hypothesized relationships between child development and economic agency, attempting to integrate children's use of savings accounts and performance of saving behaviors with the developmental domains that underlie these capabilities (see Figure 1). This framework is not intended for application to adults' economic agency, as explanations for adults' economic agency may be more structural or institutional in nature as opposed to developmental (Sherraden 1991). In other words, an adult's saving behavior like having a retirement account may be better explained by whether or how their employer offers retirement benefits (Duflo et al. 2006), as opposed to limitations with working memory capacity or inhibitory control (Ballinger et al. 2011). However, explanations in working memory and inhibitory control may be relevant for children who are undergoing extensive developmental change.

Figure 1 summarizes the relationships between child development and economic agency. Children's cognitive, social, and linguistic development produce capabilities that are mediated by age (see Table 2). In other words, children's developmental capabilities grow with them as they age. Children's economic agency related to using savings accounts and performing saving behaviors may also improve as they acquire developmental capabilities such as abstract thought, identity, expectations, or numeracy.

Given that efforts to open savings accounts for children are geared in part toward helping those growing up in poverty, socioeconomic status is also incorporated into this framework. The effects of poverty on development and economic agency provide a structural lens through which to view this framework (see Figure 1). As mentioned, structural explanations of adults' economic agency may be more appropriate than developmental explanations (Sherraden 1991). However, poverty is a structural force that shapes opportunities available to families and their children and may in turn shape children's developmental capabilities and their economic agency. Figure 1 depicts socioeconomic status as a predictor of children's development and economic agency, relationships that are described in greater detail in the following section.

Poverty: An Inhibitor of Children's Development and Economic Agency

The effects of poverty, often operationalized using measures of socioeconomic status, have been found to be especially detrimental when experienced early in childhood (Shanks and Robinson 2013), inhibiting development in critical areas of cognition, social relationships, and language (Brooks-Gunn and Duncan 1997; Farah et al. 2006). Perhaps some of the most recent and convincing evidence on the effects of poverty come from studies of young children's brain development (Farah et al. 2006; Hackman and Farah 2009). Hackman and Farah (2009) reviewed research on neurocognition and brain development, focusing on studies that controlled for socioeconomic status and concluding that the effects of poverty were profound. In their experiment testing cognitive development (Hackman and Farah 2009), 60 kindergarten children with an average age of five who were equally divided between low and middle socioeconomic status participated in a series of card sorting and object matching tasks. Differences in socioeconomic status contributed to children's performance, with those from the low socioeconomic status group faring worse than their counterparts.

The effects of poverty also emerge in children's linguistic development (Pruitt, Oetting, and Hegarty 2011; Siegler 2009). In a longitudinal study of language use between parents and children from 42 families, Hart and Risely (1995) found that children age three from the highest socioeconomic group produced more words than children of the same age from the middle and lowest socioeconomic groups, respectively 33% and 53% more words. Pruitt et al. (2011) found that children who grew up in poverty produced past tense language less often than their more affluent peers, findings interpreted by the authors as weaknesses in vocabulary. Siegler (2009) provided similar findings with regard to the effects of poverty on children's numeracy.

The effects of poverty call into question not only whether all families have the resources to adequately nurture their children's development; these effects also call into question families as facilitators of economic agency. In Figure 1, socioeconomic status predicts children's economic agency through the socialization they receive from their families. For instance, measures of socioeconomic status like head of households' education level and household income and wealth are related to children's savings account ownership and saving behaviors (Friedline. Elliott, and Chowa 2013; Grinstein-Weiss et al. 2011), a relationship that exists in part through the socialization opportunities that families provide their children (Ashby, Schoon, and Webley 2011). For example, using income as an indicator of socioeconomic status, 69% of children between ages 12 and 15 from high-income households (>$50,000; (V = 411) have savings accounts of their own, compared to 38% of those from lower-income households (<$50,000; N = 333) (Friedline 2012). Disparities based on socioeconomic status suggest that not all families can adequately facilitate the development of children's economic knowledge and behavior.

Notably, these disparities have less to do with families' willingness to provide opportunities to develop their children's economic agency and more to do with their ability to do so. It might be easy to mistake children's underdeveloped economic agency as a result of their families' irresponsibility or shortsightedness. However, underdeveloped economic agency should not be associated with irresponsibility in families of limited economic means. Families in poverty have limited knowledge and nascent saving behavior themselves (Grinstein-Weiss et al. 2011; Liisardi, Muchaud, and Mitchell 2013), thus limiting their ability to facilitate the economic agency of their children. The family living in poverty with limited economic knowledge may also be ill-equipped to teach their children about opening a savings account.


This study focused on developmental gains related to children's use of savings accounts and saving behaviors--components of economic agency--through a review of research. This approach was undertaken because before it can be determined that children use economic knowledge to make decisions about saving when they have opportunities to do so, it must first be determined whether or not they are developmentally capable of doing so and at what ages. It appears that children are developmentally capable of economic agency as early as age five or six. Children make gains in economic knowledge and behavior at this age in tandem with developmental gains in cognition, social relationships, and language.

The fact that children exhibit economic agency at young ages lends support for encouraging financial capability early in life (Sherraden 2013). A child who learns basic economic knowledge and has a savings account might be said to be financially capable because her knowledge is combined with opportunity. Young children may be able to acquire basic economic knowledge as evidenced by capabilities in cognitive flexibility and working memory. They may even be able to put knowledge into practice if they also have a savings account. Young children can perform simple saving behaviors, making it likely that they can combine their knowledge about and opportunities to save--even if they need assistance (Sherraden 2013). Experiential learning that allows for hands-on opportunities to put knowledge into practice might be important for helping young children to operationalize abstract concepts like saving accounts and saving behaviors. Notably, efforts to teach economic knowledge may need to be delivered much earlier than currently conceived if children are to become financially capable in accord with gains in development and economic agency; public school systems introduce financial education in middle and high schools during adolescence or early young adulthood (Council for Economic Education 2012). This is well beyond the age when children are capable of learning such concepts.

On average, gains in development and economic agency are assumed to be experienced consistently across children; however, children whose development and economic agency are determined in part by poverty may start off at a disadvantage (Brooks-Gunn and Duncan 1997). This implies that policy can play a role in addressing the structural inequalities of poverty that constrain families' abilities to successfully facilitate their children's development and economic agency. Numerous policies (6) aim to alleviate family poverty, with children being the beneficiaries through related effects like increased family income, access to food and nutrition, and support for stable housing--all of which may promote healthy development (Shanks and Robinson 2013).

Implications for Future Research

While cognitive, social, and linguistic development is hypothesized to relate to children's economic agency, research has not explicitly tested these links. Opportunities for future research are revealed by considering children's economic agency from a developmental perspective. An assumption of previous research and of efforts to open savings accounts for children is that children who grow up with accounts may be better off educationally and economically in the long run compared to their counterparts who do not grow up with accounts (Friedline 2014). In other words, children's initial opportunities to own and use savings accounts may matter for how their economic knowledge and behavior accelerates forward. Questions here may ask, do children with savings accounts achieve gains in economic knowledge and behavior more quickly than their peers without savings accounts? At what age(s) can children assimilate basic economic knowledge and apply that knowledge to saving behaviors?

Most existing efforts to open accounts for children are designed for college savings. Yet, given children's rudimentary understanding of time order (especially at age five or six) and their capability to maintain information over short time periods (see Table 2), children's capability to save for a goal 13 years in the future is unknown. Children may need multiple and short-term goals for which they can save in order to practice using savings accounts and employing saving behaviors (AEDI 2013), in addition to the long-term goal of college. Research questions here include, for what goals do children save and at what ages can children save toward long-term goals like college? What mechanisms facilitate young children's saving behavior and do these same mechanisms produce similar effects across the life course?

Given the hypothesized importance of ownership (Friedline 2014), the following questions may be of particular interest. Does children's ownership of their savings accounts produce distinct effects on outcomes? How do children assign ownership to accounts? Is opening an account in children's names sufficient for them to assign ownership? Does interacting with their savings accounts strengthen the assignment of ownership and if so, what interactions facilitate this assignment?

A related line of questioning might even explore whether and how "high-touch" saving interventions for children produce effects on outcomes compared to "low-touch" interventions. (7) In other words, should children's economic agency and development--which suggest a need for "high-touch"--be taken into consideration when designing programs and policies? Are there differences in outcomes when programs and policies are designed to recognize, incorporate, or leverage children's economic agency compared to those that are not? If so, how do outcomes differ? What are the tradeoffs of one design over another and can aspects of each be integrated for producing optimal effects on outcomes? Findings from these questions will be critical if we are to truly understand how policies that open savings accounts for children can be designed to meet their needs.

Implications for Policy

If relationships between economic agency, development, and poverty are supported by future research, then the following implications may be important for policy. The foremost implication is that policies aiming to help children develop economic agency should begin at or before the age at which they are capable of using savings accounts and performing saving behaviors--age five or six. This implication is consistent with efforts to open savings accounts for children as early as birth. As a policy concept, CDAs (also referred to as Children's Savings Accounts [CSAs]) that extend accounts directly to children are gaining momentum. A number of national and universal CDA policy proposals have emerged in the United States, and the America Saving for Personal Investment, Retirement, and Education (ASPIRE) Act is perhaps the most well-known (Cramer 2010). The ASPIRE Act proposes to roll out savings accounts with a $500 initial deposit universally to all newborns and provide additional subsidies to children whose households' incomes fall below certain thresholds. CDAs are proposed to be maintained across the life course for use toward expenses like education, home ownership, or retirement (Cramer 2010). While the United States has not adopted a national policy, CDA policies have been implemented in Singapore, Canada, and South Korea (Loke and Sherraden 2009). In absence of a national policy in the United States, educational institutions, nonprofit organizations, and states are enacting their own CDAs. These CDAs target children at age five or six and earlier (Clancy and Sherraden 2014), and potentially create opportunities to learn about children's economic agency and development.

A related implication is that there may be other important times to intervene in children's lives after CDAs are opened at or before age five or six. Ages eight or nine and 11 or 12 represent opportune moments for interventions, such as allowing withdrawals toward short-term saving goals and making subsidized deposits into CDAs that help children interact with their accounts and accumulate wealth. These ages also correspond with third and sixth grades in the US educational system (even age five or six corresponds with kindergarten). Thus, schools may intervene at these grades by teaching financial education, consistent with children's natural gains in economic agency and development. Along these lines, it is advisable for schools to teach financial education from the start of children's educational careers as opposed to the end.

A second policy implication centers on the incorporation of observable, concrete characteristics into CDAs--particularly for the benefit of young children. Children develop increased cognitive capacity to grasp abstract concepts and to consider objects from multiple aspects at approximately age five (Zelazo 2004). Savings accounts in and of themselves are abstract--they do not have a color or shape by which children can sort their dimensions. Giving children cues with observable characteristics, like a deposit slip with colors and pictures to represent their saving, may help young children understand the abstract nature of their savings accounts until they develop the ability for abstract thought. A bank account statement that displays a thermometer and their accumulated savings toward their goals might help make their progress salient and reinforce the goals for which they are saving.

Opening CDAs in children's names is the third policy implication. Savings accounts opened in children's names may signal ownership based on the first possession heuristic (Friedman 2000), helping children to believe that they are the owners of the accounts and beneficiaries of accumulated savings. Bank statements and other communications directed explicitly to children may also facilitate ownership. This designation is potentially important because children may think about and interact differently with accounts that they own, gaining knowledge about the world of money and finances and practice with using savings to plan for the future.

The fourth policy implication is to consider a CDA design that allows children to save for short- and long-term goals. CDAs by their very nature allow children to act out "the future is now." This is because CDAs are opened at age five or six and earlier and are geared in part for saving toward college. A design that facilitates short- and long-term saving lets children practice saving for goals to be achieved in the coming weeks or months and to do so in concert with developmental milestones; meanwhile, the design encourages children to save in the present for expenses that correlate with future identities to be realized in the coming years. Early successes with saving for short-term goals give children quick and timely feedback about their behaviors, perhaps helping them to recognize saving as a realistic strategy for achieving long-term goals (Otto 2013). Supporting children as they save for shortand long-term goals also recognizes the hierarchical arrangement of saving needs (saving for a new school uniform and saving for college; Xiao and Anderson 1997). These needs transition as children advance through the life course. Eventually, saving for college may transition to saving for retirement.

An adaptable CDA design is the fifth implication for policy. In addition to taking children's development into consideration, CDA design may consider growing with children's saving needs over time. An account structure that meets children's developmental needs and adapts to their saving needs makes logical sense if children are to use and maximize their CDAs across the life course. Initially, it may sound impractical to develop CDAs that adapt as children grow and remain scalable at the same time. However, this concept is consistent with 401 (k) and other retirement plans--well-known products available from existing banking institutions--in which investments are made based on age to retirement and are adjusted as the account holder nears retirement. A person opening a retirement account at age 25 may take a higher-risk investment given that they have about 40 years to weather stock market fluctuations. Higher-risk investments can automatically transition to lower-risk investments as a person nears retirement, so as to not expose their investments to stock fluctuations.

An example of an adaptable design comes from Singapore's rolling savings accounts, the first of which opens automatically for all children at age six (Loke and Sherraden 2009). Edusave accounts are available for children ages six to 16 and are used to maximize educational opportunities during primary school years. Funded in part with annual contributions from the government, children and their families use savings accumulated in Edusave accounts for short-term educational expenses like school supplies. When children reach age 17, any remaining funds roll into their Post-Secondary Education Account, where savings can be used toward obtaining a college degree or other type of postsecondary training. Funds that remain in their Post-Secondary Education Account at age 30 roll into a Central Provident Fund Account, where savings can be used toward housing, healthcare, and retirement needs. This adaptable design provides children and their families with one savings account at a time that is designed for saving toward goals that align with a specific developmental milestone; as children transition through stages of development, any remaining savings rolls into the next account in which they save toward expenses that align with their next developmental milestone.


Children are economic agents capable of using savings accounts and exhibiting saving behaviors as early as age five or six. Their economic agency emerges and advances in congruence with cognitive, social, and linguistic developmental gains. Poverty inhibits children's development in these domains and may limit opportunities for economic agency via families' economic socialization. Policies such as CDAs that intend to redress the effects of poverty and develop children's economic agency should intervene at or before age five or six. Age five or six also corresponds with kindergarten enrollment, which means that CDAs can leverage children's enrollment into school and the start of their educational careers as a time for intervention. Later milestones detectable at ages eight or nine and 11 or 12 correspond with third and sixth grades and may represent opportunities for school systems to teach financial education. CDAs that take children's economic agency and developmental gains into consideration may be opened in children's names, have observable characteristics, and allow for short-and long-term saving goals. However, the relationships between economic agency, development, and poverty should be supported empirically in order to draw clear implications for CDA policies and related efforts to open savings accounts for children.


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(1.) This amount includes initial, match, and incentive deposits and parent contributions, which mask children's own contributions and is not a sole representation of children's saving.

(2.) This definition of developmental capabilities is based on Merriam Webster's definition of capability as a characteristic or aptitude with the potential to be developed and Martha Nussbaum's (2001, 46) definition of capability as what "people are actually able to do and to be."

(3.) These ages correspond with kindergarten, third, and sixth grades in the US educational system.

(4.) Here, this $8 amount excludes initial and match deposits and includes parent contributions. This amount may represent children's and parents' own contributions to this average.

(5.) Developmental gains can be observed in sensitive stages, such as between ages five and six (Best and Miller 2010). However, this review focuses on gains at age five or six, eight or nine, and 11 or 12 that are consistent with the phases or milestones of children's development in economic knowledge and behavior.

(6.) It is beyond the scope of this paper to review all policies geared toward alleviating family poverty, some of these policies include the Earned Income Tax Credit (EITC), Supplemental Nutrition Assistance Program (SNAP), and rental assistance through Housing and Urban Development (HUD) (Stoesz 2013).

(7.) "High-touch" interventions often require frequent and in-person interactions with children, such as simulated economies that take place in children's school classrooms or individual, face-to-face financial counseling. "Low-touch" interventions are less frequent and do not always require in-person interactions with children, such as emails or paper mailings about bank statements or computer apps and games that aim to teach financial concepts.

Dr. Terri Friedline ( is an Assistant Professor of Social Welfare at The University of Kansas and the Faculty Director of Financial Inclusion at the Center for Assets, Education, and Inclusion. The author would like to thank Sandy Beverly, Karen Kolivoski, Melinda Lewis, and the anonymous reviewers for their valuable feedback on this article.

DOI: 10.1111/joca.12062

Summary of Developmental Gains in Children's Capabilities to Use
Savings Accounts and Employ Saving Behavior

             Age 5 or 6, and earlier (a)   Age 8 or 9 (b)

Savings      Asks seemingly illogical      Gains an understanding of
  account      questions about the           a savings account's
               savings account, like its     abstract characteristics
             Thinks depositing money       Recognizes a savings
               into the savings              account can help
               account is like losing        achieve saving goals
Saving       Articulates the               Develops a preference for
  behavior     importance or virtue of       saving over spending
               and benefits to saving
             Develops rudimentary          Improves saving
               saving strategies             strategies
             Saves for shorter-term        Saves for increasingly
               goals (e.g., days,            longer amounts of time
               weeks)                        (e.g., weeks, months)

             Age 11 or 12, and beyond (c)

Savings      Recognizes a savings
  account      account can be used to
               achieve shorter- and
               longer-term goals
             Prefers using a savings
               account to achieve goals

Saving       Integrates economic
  behavior     knowledge with saving
             Uses sophisticated saving
             Saves for longer-term
               goals (e.g., months,

Notes: This table synthesizes findings from the review of research on
children's development of economic agency to identify the ages at
which gains in the use of savings accounts and performance of saving
behaviors are observed. The following notes give examples of the
sources of information for this table.

(a) Children at age five or six articulate the importance of saving
consistent with societal norms (Berti and Bombi 1981), develop
rudimentary saving strategies (Webley and Plaisier 1998), and hold
illogical ideas about savings accounts (Ng 1983).

(b) Children at age eight or nine develop a preference for saving
(Berti and Bombi 1981), improve their saving strategies in part by
saving for increasingly longer amounts of time (Otto et al. 2006), and
gain understandings about and recognize accounts as facilitators of
their saving goals (Sherraden et al. 2007).

(c) Children at age 11 or 12 integrate their economic knowledge with
their saving behavior (Furnham 1999), use more sophisticated
strategies by saving for longer amounts of time (Sonuga-Barke and
Webley 1993), recognize accounts as a way to achieve short-and
long-term goals (Elliott et al. 2010), and develop preferences for
accounts (Otto et al. 2006).

Gains in Children 's Cognitive, Social, and Linguistic Developmental


Domains      Age 5 or 6, and earlier       Age 8 or 9 (a)

Cognitive    Focuses on observable         Thinks abstractly to
               aspects of objects            simultaneously understand
                                             several dimensions of a
                                             single object

             Maintains and manipulates     Improves the ability to use
               information over short        information to carry out
               periods of time without       complex behaviors
               cues to complete simple

             Develops ability to use       Uses strategies to store
             information to carry out        and retrieve information
             simple behaviors                (e.g., labeling,

             Struggles to store and        Requires cues to produce
             retrieve information when       strategies for storing
             prompted                        and retrieving

             Gains inhibitory control,     Makes improvements in
             self-regulation over            inhibitory control with
             simple tasks                    complex tasks

Social       Describes other people        Considers the
             and situations in               perspectives and points
             concrete terms                  of view of other people

             Does not make comparisons     Gains awareness that
             to other people                 others have different
                                             opinions and motives

             Infers ownership based on     Recognizes that ownership
             first possession, begins        of objects and ideas is
             to apply ownership to           not always based on
             ideas                           possession

             Exhibits preferences for      Develops identities and
             objects that they own           expectations associated
                                             with objects, ideas, and

Linguistic   Spontaneously verbalizes      Uses past, present, and
             and counts numbers              future tenses accurately

             Develops early language       Develops external future
             revolving around concrete       tenses
             items and structures

             Demonstrates emergent         Accurately distinguishes
               ability for hypothetical      time order of events

             distinguishes time order
               of events

             Produces future tense
               more struggles to produce
               distant future accurately


Domains      Age 11 or 12, and beyond (a)

Cognitive    Consistently uses information to
               carry out complex behaviors

             Develops capabilities in abstract
               and concrete thought, including
               understanding hypothetical

             Spontaneously uses strategies to
               store and retrieve information

             Refines ability to maintain and
               manipulate information without
               cues to complete complex tasks

             Refines inhibitory control over
               complex tasks

Social       Simultaneously considers one's
               own point of view and others'
               points of view

             Understands others' points of
               view as they relate to their
               social group or system

             Develops skills in persuasion and


Notes: This table synthesizes findings from the review of research on
children's development to identify the ages at which gains in
developmental capabilities can be observed.

(a) Developmental capabilities in the domains of cognitive, social,
and linguistic development and listed at age eight or nine and 11 or
12 include all of the previously abilities at age five or six. This
represents building blocks of development--gains at age five or six are
foundational for gains at age eight or nine and 11 or 12.
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Author:Friedline, Terri
Publication:Journal of Consumer Affairs
Geographic Code:1U2NY
Date:Mar 22, 2015
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