It has been shown that a majority of bankruptcies occur in early adulthood, between the ages of 24 and 35. Usually, the main cause of the bankruptcy isn't a massive debts like an unpaid mortgage, mounting medical bills, or other major expenses; it usually stems from mounting smaller debts that become too numerous to manage.

Often, these smaller debts arise when credit is used to make purchases that should be paid with cash. Even a small emergency of $500 can become a looming debt when paid on a credit card with a 15-19% interest rate. Occasional credit purchases can become a habit with debt.

With this in mind, teaching children and teens to save early on becomes even more important. They may be able to avoid the pitfalls of credit debt, and also ensure some financial security for the future.

In terms of major expenses, like college tuition and expenses, teens are optimistic that they will receive scholarships and grants throughout their academic career. In reality they don't; 58% of college financing packages are made up of loans. As a second recourse, many expect parents to pay for 20 to 50% of their college expenses. Should a child or teen start saving early, it may be possible to curtail the most expensive option of taking loan debt that may take up to 10 years to pay off. Even with a parents' assistance most teens recognize they will have to contribute financially to their college education. Saving early on can diminish financial hardships when a teen moves onto college.

But just how much more can money can be amassed by starting a savings plan earlier?
Although interest rates are much lower in recent years, continuous, regular savings can add up over time. A basic savings account with only 2% interest started with just $100 with regular contributions of $20 per month will amass $1,373.56 within 5 years.

In a comparison between hypothetical savings accounts of 10 versus 8 years, the Schwab Center for Investment Research has demonstrated that contributions of $200 per month in both accounts yield a $7000 advantage for the account holder who started earlier.

How can parents help children and teens hold value in saving for the future? One of the first ways is to educate them about finances, so they can learn about the relationships between earnings, current spending, and saving for the future. If a parent recognizes their lack of financial management skills, they can always enroll children or teens in financial education courses. Additionally, parents can assist children in writing a savings plan, or encourage children and teens to engage their peers in learning and discussing money management to normalize talking about savings.

References

National Consumer League. Teens and Finances 2002 Survey Results: Teens and Financial Education.

Money Wi$e. Talking to Teens About Money.

Jannelle A. Williams. Passing on the Wisdom of Wealth.
Schwab MoneyWise. Benefits of Saving Early.