Does Access to Bank Accounts as a Minor Improve Financial Capability? Evidence from Minor Bank Account Laws

J. Michael Collins, Jeff Larrimore and Carly Urban

No 2021-075, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Banking the unbanked is a common policy goal, but should this include access to bank accounts for minors? This study estimates how teenagers' access to bank accounts affects their financial development. Using variation in state laws, we show policies that permit access to independently-owned accounts increase account ownership at age 16 through age 19, although by age 24 those young adults are banked at similar rates to teens who grew up in states that do not allow minors to own accounts independently. Teens who had access to independently-owned accounts use fewer high-cost alternative financial services (like payday loans) through age 20—but are then more likely to use AFS, particularly check-cashing services, from age 21 through 24. Using credit records, we show that access to non-custodial accounts has no effects on credit scores in the short-run, but lower credit scores and more loan delinquencies at ages 21 through 24. While these state laws promote financial inclusion for teenagers, the young people who take on accounts may experience negative consequences in the longer run.

Keywords: Unbanked; Financial Inclusion; Bank Regulation; Financial Capability (search for similar items in EconPapers)
JEL-codes: D14 D18 G18 G21 G28 (search for similar items in EconPapers)
Pages: 33 p.
Date: 2021-11-19
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-fle and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2021-75

DOI: 10.17016/FEDS.2021.075

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