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Understanding the importance of saving at a young age is an early financial lesson that can significantly impact the rest of your life. It can be beneficial starting your savings journey when you’re young – implementing a sound process that combines basic financial knowledge and discipline early in life can set you on a course for financial freedom.

April is Financial Literacy Month, which is dedicated to showing the impact having a solid financial education can have, especially for young people. Saving at an early age is a great way to promote financial literacy, and it can have major ramifications later. Take this as an example: A 20-year-old individual who started saving $100 per month and earned an annual 4% compounded return would have saved more than $145,000 by the time they turned 65. But if that person instead waited until the age of 30 and contributed the same amount per month with the same compound rate, when they turned 65, they would have only accumulated a little more than $88,000. In this scenario, starting the savings process a decade earlier would have made a substantial difference.

According to a study conducted by the University of Kansas, young adults who open savings accounts by the age of 18 are more likely to achieve financial stability in their life than those who don’t. There are clear advantages to starting the savings process early, like the practical lessons that last a lifetime and the ability to take advantage of compound interest.

Don’t Wait — Start Early

Younger individuals may have less money available in their budget to save, but it’s still important to set some aside if they’re able. Even limited contributions can create the potential for substantial future earnings. Start small and build from there — whether it’s $10, $25, $50, or $100 saved per month, every bit counts.

Starting to save early in life not only makes it easier to save up for bigger purchases like a car, college tuition, and even retirement, but it also has other benefits that can last forever. Younger individuals can learn the dos and don’ts of spending management, how to track their transactions, and budgeting skills. In addition, meeting savings goals can instill a sense of accomplishment and self-discipline.

The best way to start a young person’s savings journey is by opening a youth savings or checking account. Youth accounts are the same as any conventional checking or savings accounts, except they’re opened under the minor’s name with a responsible party as a joint owner on the account. You can also set them up with a secured credit card, which is like a traditional credit card except it has a set credit limit based on the security deposit you make to set up the account.

The Power of Compound Interest

When starting a savings journey, it’s important to understand the principle of compound interest and how to take advantage of it. Compound interest is interest that’s calculated both on the principal invested, plus any interest that’s already been accrued. In other words, you earn “interest on interest,” accelerating the growth of your savings over time.

Compound interest is a powerful tool but one that requires time to fully develop. When you use it over an extended period, your money can grow significantly.

Moving from concept to practice when saving with compound interest requires discipline, but doing so, especially at a young age, can help individuals achieve long-term financial goals. Over time, by starting the savings process earlier, you can potentially accumulate more wealth without extra effort.

If you are a parent or family member of a young person, opening a youth account for them can help lead them to a lifetime of financial success. Let us show you how – Ascend members are eligible for a free financial health checkup, where a Certified Credit Union Financial Counselor can assist with savings strategies and more. Schedule an appointment at ascend.org.

Ascend is federally insured by the NCUA. Leslie Copeland is Chief Strategy Officer with Ascend Federal Credit Union.