The Potential for Savings Accounts to Protect Young-Adult Households from Unsecured Debt in Periods of Macroeconomic Stability and Decline

Abstract

The effects of different types of debt can vary widely: some debt is considered productive by advancing financial health, while other debt can be unproductive, pushing financial health out of reach. A savings account may be associated with young-adult households’ reduced reliance on unproductive debt and their increased access to productive debt that can facilitate wealth building. This article tests the association between a savings account and debt in the lives of American young adults during periods of macroeconomic stability and decline. Owning a savings account in 1996 was associated with a 14 percent decrease ($844) in young-adult households’ accumulated unsecured debt, while closing an account in 2008 was associated with a 12 percent increase ($1,320) in this type of debt. Thus, a savings account may help young adults invest in their debt by entering better, healthier credit markets and protecting them from riskier ones, especially during bad economic times.

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