How to Help Kids Start Saving for their Future
Teaching children to save and invest early can have a powerful impact on their long-term financial well-being. Children who develop saving habits at a young age are more likely to become financially responsible adults.
The most effective way to help children save is to combine financial education with real-world saving opportunities. Parents and caregivers can encourage children to set savings goals, divide money between spending and saving, and discuss how investments can grow over time through compound returns. Even small, regular contributions can help children develop habits that last a lifetime.
What Savings and Investment Vehicles are Available for Children?
Families today have several options for helping children build wealth:
1. Traditional Savings Accounts
Savings accounts are often the easiest starting point for young children. They provide a safe place to save money earned from allowances, gifts, or small jobs while teaching basic banking habits. Although interest rates are typically modest, these accounts help children learn the value of delayed gratification and disciplined saving.
2. Custodial Accounts (UGMA/UTMA)
UGMA1 (Uniform Gifts to Minors Act) and UTMA2 (Uniform Transfers to Minors Act) accounts are sometimes easier to set up than a trust and can accomplish some of the same goals. These accounts allow parents, grandparents, or other adults to invest on behalf of a child. There are generally no annual contribution limits, and funds can be used for the child’s benefit. Once the child reaches the age of majority, ownership transfers to them. These accounts offer flexibility but should be considered carefully because the assets ultimately become the child’s property.
Please note that investment earnings may be subject to the so-called “kiddie tax”. For 2026, that means the first $1,350 of unearned income will be tax-free, the next $1,350 will be taxed at the child’s marginal rate, and anything above that may be taxed at the parent’s marginal tax rate.3 Something else to keep in mind is that custodial accounts are considered the child’s asset, which may have a bigger impact on financial aid eligibility compared to other options.
3. 529 Education Savings Plans
A 529 plan is one of the most popular vehicles for education savings. Investments grow tax-deferred, and qualified withdrawals for education expenses are generally tax-free. Many states also provide state tax benefits for contributions. Recent legislative changes have also expanded the flexibility of 529 plans4, including limited opportunities to roll unused funds into a Roth IRA under certain circumstances.
4. Roth IRA for Kids
For children with earned income from jobs such as babysitting, lawn care, tutoring, or food service, a Roth IRA can be a powerful wealth-building tool. Contributions cannot exceed their total earnings or the $7,500 annual limit5 (for 2026), whichever is lower, and qualified withdrawals in retirement can be tax-free. Starting a Roth IRA at a young age allows children to benefit from decades of compounding growth.
5. 530A Accounts (Trump Accounts)
A newer option is the Trump Account, created under federal law in 2025. Implemented as part of the One Big Beautiful Bill Act, these accounts are designed to encourage long-term investing for children under age 18. Eligible children born between January 1, 2025, and December 31, 2028, may receive a one-time $1,000 federal seed contribution from the U.S. Treasury. Families, relatives, and employers may also contribute, subject to annual limits.
The accounts focus on low-cost funds and ETF’s that are composed of at least 90% U.S. stocks. These accounts launched on July 4th of 2026 and have an annual contribution limit of $5,000.6 The accounts generally cannot be accessed until adulthood except under specific rules.
How can I Help Build a Child’s Financial Literacy?
While savings vehicles are important, financial literacy is often the foundation for long-term success. Children who understand concepts such as budgeting, earning, saving, investing, debt, and goal setting are better equipped to make sound financial decisions throughout their lives. Financial education does not need to be complicated. Simple conversations about household budgeting, comparison shopping, and saving for desired purchases can help children develop practical money-management skills.
Parents and loved ones can also use age-appropriate resources to reinforce these lessons. Organizations such as the Consumer Financial Protection Bureau (CFPB), Jump$tart Coalition for Personal Financial Literacy, and Next Gen Personal Finance (NGPF) offer educational materials, activities, and lesson plans. Many banks and credit unions also provide youth-focused financial education programs. For older children and teens, interactive budgeting tools, investing simulators, and personal finance courses can help bridge the gap between financial concepts and real-world decision-making.
Key Takeaway
The best strategy is often to start early and save consistently. A family may use multiple tools, such as a savings account for short-term goals, a 529 plan for education, a Roth IRA for earned income, and a Trump Account when eligible. The specific mix depends on a family’s goals, tax situation, and the child’s future needs. Regardless of the investment vehicle chosen, teaching children the habits of saving, investing, budgeting, and long-term planning may be the most valuable investment of all. Talking with a financial professional can help you determine the most appropriate course of action for your circumstances.
1 https://www.investopedia.com/terms/u/ugma.asp
2 https://www.investopedia.com/terms/u/utma.asp
3 https://www.fidelity.com/learning-center/personal-finance/kiddie-tax
4 https://www.irs.gov/newsroom/529-plans-questions-and-answers
5 https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
6 https://trumpaccounts.gov/
For Use with the General Public. Financial Planning and Advisory Services offered through Vicus Capital, Inc., a federally Registered Investment Advisor.
