What the decline in student savings tells us about economic hardship and future woes

Illustration: TBS

Tania, a 10th-grader from Rangpur, opened a school banking account in 2022 through a state-owned bank after receiving a government scholarship.

Along with her scholarship funds, she carefully saved her Eid salami and pocket money, intending to build a nest egg for her college education. 

With an initial deposit requirement of only Tk100 and no maintenance fees, the account appeared to be the ideal way to secure her future.

Until early 2024, Tania was on track to fulfill her dream of attending a top college in Dhaka and eventually Dhaka University. With a healthy savings balance, she was confident she would not burden her parents, whose income could barely support their family of six. 

However, in March, it became clear that her parents' earnings could no longer cover household expenses. As the eldest daughter, Tania was faced with a tough choice.

"My little brother is just a year old, and I couldn't bear to see him suffer from malnutrition. So, I withdrew a large portion of my savings to help my family," Tania told us in a recent conversation. Since then, she has not been able to add to her savings anymore. Any small scholarship funds now go directly to her parents.

"I don't know what the future holds for me," she said, uncertain about her next step. Moving to Dhaka after SSC requires funds she no longer has, so she may have to settle for a local college. With limited competition and comparatively poorer quality of education, it could hinder her chances of getting into Dhaka University or any other public university.

"Needless to say, my family can't afford a private university," she added. Tania is far from alone in her struggles. 

Fahim, an eighth-grader from Sylhet, had been saving for a bicycle to commute to school but had to withdraw his savings to cover his mother's medical expenses. Similarly, Rima, another 10th-grader from Khulna, had been saving to buy a sewing machine for her mother's tailoring business, but her savings were depleted when the family encountered financial difficulties.

Such decline in students' savings has been alarming. Despite the Bangladesh Bank's School Banking programme, introduced in 2010 and now encompassing 59 banks, allowing students aged 11-17 to open fee-free accounts with a minimum deposit of Tk100 and offering attractive interest rates and free debit cards to promote savings and financial literacy, student savings have fallen significantly.

As of October, student deposits stood at Tk2,087 crore, down from Tk2,135 crore in September, marking a notable drop of Tk48 crore in just one month. In June, it was Tk 2,325 crore and has decreased by Tk238 crore in four months. 

This trend highlights a broader issue: Withdrawals are exceeding deposits, largely due to the increasing financial strain on families. Experts believe the decline in students' savings is a direct result of the current economic instability. 

According to applied macroeconomist Jyoti Rahman, the drop in school children's savings over the past year is a direct manifestation of the economic difficulties households are facing. 

There were price shocks starting from 2022 due to global events like the pandemic and the Russia-Ukraine war, which were worsened by domestic policy missteps, such as parallel exchange rates, the nine-six interest rate policy, and import restrictions. 

Rahman added that more recently, the July Uprising and its aftermath disrupted supply chains and contributed to rising prices. Families have faced not only price shocks but also income shocks in 2024. 

"Against the backdrop of this twin shock, it is not surprising that households have been dipping into their savings to maintain their consumption, or more generally, standard of living," he explained.  

Dr Miraj Ahmed Bhuiyan, an associate professor at the School of Economics, Guangdong University of Finance and Economics, highlighted a recent survey showing that up to 60% of parents reported a decline in their children's savings in 2023 compared to the previous year.

"This trend is particularly pronounced among low-income households, where around 40% of families experience job instability or fluctuating incomes, further complicating their financial situation," he said. 

Further complicating the financial strain is the persistent gap between inflation and wage growth. Inflation in Bangladesh has consistently outpaced wage growth for over three years, exacerbating the financial strain on low-income and unskilled workers across agriculture, industrial, and service sectors. 

As of November, inflation in Bangladesh was 11.38%, significantly outpacing the wage growth rate of 8.10%. According to the Wage Rate Index (WRI) from the Bangladesh Bureau of Statistics (BBS), the 3.28% gap between inflation and wage growth is the second-largest in at least a decade. The largest gap, 3.73 percentage points, occurred in July of this year.

"The psychological impact of economic stress also plays a role," added Dr Bhuiyan. "Many parents are prioritising immediate survival needs over future savings, contributing to a culture of financial insecurity. Without adequate savings, children face barriers to educational opportunities, which can limit their economic mobility in the future." 

Dr Muhammad Shafiullah, associate professor of Department of Economics and Social Sciences at Brac University, also expressed concern over the long-term consequences. 

He warned that the decline in savings could hinder future educational opportunities, especially for those from less privileged households. This could widen the income and wealth gap, and lower educational attainment will present challenges for the future labour force, potentially leading to skill shortages and greater reliance on foreign workers.

"Bangladeshi students face lower employability, while employers face skills shortages due to a mismatch between the education system and the labour market. The country may be compelled to rely on immigrant workers to fill skill shortages," he said.

He further noted that the lower savings of today's school children could leave them financially vulnerable in adulthood. With reduced capacity to cover expenses related to family and future planning, they may struggle to afford consumer goods like energy, household appliances, and computers, as well as property investments. This, in turn, could diminish their economic contributions and leave them with limited financial resources in retirement.

And so, he stressed that the decline in savings calls into question the future of both the individuals involved and the broader economy. "Bangladesh's policymakers need to take rapid and decisive actions such as financial assistance, subsidies, scholarships to reverse this ominous trend."

Dr Bhuiyan also agrees. "To combat this decline, targeted government policies are needed to support low-income families and promote a savings culture, ensuring that children can build a more secure financial future."