Childhood Foundations

The most powerful financial lessons are not taught in school. They are learned at home, in small moments, before a child ever earns their first paycheck or allowance.

Children form their attitudes toward money earlier than most parents realize. Long before they understand compound interest or tax brackets, they are watching. They observe how adults talk about money — or avoid talking about it. They notice whether purchases are made impulsively or deliberately. They absorb the emotional temperature of financial stress. All of this becomes their starting point for dealing with money. If left unchecked, these early observations can form a child’s complete understanding of what money means — and for many children, that lesson is simply that there is never enough, and that no matter how hard you work, things never seem to get better.

This page is written for parents and caregivers. It is not about turning your child into a financial prodigy. It is about building a vocabulary, a set of habits, and a healthy relationship with money that will serve them for life.

When to Start

Children as young as 3 can begin to understand the concept of money. By age 7, most financial habits are already forming. The earlier the conversation starts, the better. I started talking with my kids about money around age 5. It is by no means an easy thing to do — primarily because they ask a lot of questions, many of which I was not prepared to answer. But in the end, it helped us both grow.

There are many ways to start teaching kids about money, but the most important concept is that money is earned. When children are simply given money, they lose the sense of value attached to what they hold in their hands. Doing simple things — like giving them the cash to go purchase ice cream or the candy they want — connects the act of spending to something tangible. One of the challenges in today’s society is that nearly everything is electronic. When you do not see money change hands, it is difficult to conceptualize what actually happened. This is where cash plays a vital role in a child’s early understanding of money.

Ever since I was a kid, my parents would save all their spare change in a jar. We had one of those enormous 5-gallon water jugs that the whole family used for loose coins. When it got about halfway full, we would pour it out on the floor, put on a movie, and spend hours counting and rolling coins — sorting them into piles, double-checking our totals, and making sure we had not made any mistakes. I still remember this today, and it made a lasting impression on me about the value of money. We rolled it all up and took it to the bank to exchange it for dollars, and then we got to use that money for things when we went on vacation.

The Three Jars

In a similar spirit, many families teach children to use three jars to visualize the framework of spend, save, and give. Physical jars make abstract concepts visible and tangible for young children — much the same way that water jug full of coins did for me. As children earn money or find spare change, have them divide it among the jars. This simple exercise helps them decide what the money is for and gives them a real sense of how long it takes to accumulate enough to do something meaningful with it. One of the most important things a child can learn is that money takes time to grow. Too often, children are simply handed the thing they want without any understanding of what it took to provide it.

Allowance and Earning

Allowance is a complicated concept, and for some families it is not part of the culture at all. In our home, we do not give allowance for the things children are expected to do as part of the family — cleaning up after themselves, doing their laundry, and contributing to the household. My view is that certain responsibilities simply come with being a member of the family, and those are not compensated.

That said, growing up, my mother did give us an allowance tied directly to completing our weekly chores. Every chore had a set dollar value, and on Friday you tallied up what you had done — that was your pay. Back then it came out to about $2.00 a week, which my kids would laugh at today. In our family now, children earn money by doing things outside the home: helping a neighbor, volunteering time at church, collecting recyclables and turning them in for cash, setting up a lemonade stand, or helping with yard work that goes beyond the normal household expectations.

The great advantage of children earning money outside your home is that this earned income can be contributed to a Roth IRA on their behalf. I will cover this in detail in the accounts section below, but every dollar of legitimate earned income can be invested toward their retirement. How many kids have a retirement account at age ten?

Talking Openly About Money

I have always been interested in finance, so I read a great deal about it — books, articles, market news. I would check my portfolio each morning and follow updates on the stocks I held. When my youngest was 3 years old, we had a routine: we would let mom sleep in, and he would sit on my lap while I read to him about money. I explained what it meant to put money in a bank and earn interest on it. Over several years those conversations grew more involved, and by the time he was in grade school he could articulate what compound interest meant and understood that saving money over a long period of time meant having more money in the future.

It is equally important to talk to children about the times when money is tight. Children are far smarter than we give them credit for, and we sometimes do not want to spend the extra few minutes explaining things in a way they can understand. But I have found it genuinely helpful to walk them through why we have a budget — what we budget for, and which expenses are the most essential to cover first. I can still picture my mother at the kitchen table with her calculator, balancing the checkbook. She clipped coupons from the Sunday paper for groceries, made detailed shopping lists, and went to K-Mart to put school clothes on layaway — making payments every few weeks until we finally got to bring everything home.

Almost all of these habits have disappeared for the current generation of children. Nobody records every purchase in a checkbook register anymore. I write a check maybe twice a year to pay the DMV. Layaway went the way of the dodo, replaced by buy-now-pay-later services and credit cards. You get the item immediately, but then you owe for the next six months — and by that point the excitement is long gone, while the debt keeps accumulating.

As parents navigating a completely electronic, tap-and-pay world, we need to find ways to bring some of these teachable moments back. Maybe that means you purchase something and it sits in your room until your child has worked off the cost. Maybe it means sitting down with the grocery receipt and going through it together so they can begin to understand what things actually cost. Board games can help too — Monopoly, for all its simplicity, teaches money, property, debt, and bankruptcy in a way that sticks. The goal is to make the abstract tangible again.

Accounts for Children

There are several types of accounts you can open for your children today, each serving a different purpose. Starting early — even with a simple savings account — builds both the habit of saving and the concept of institutional banking before the pressures of adult financial life set in.

Types of Accounts for Children

• Custodial Savings Account — The simplest starting point. Available at any bank or credit union, with no minimum age requirement. The parent is the custodian; the child owns the funds. FDIC or NCUA insured up to $250,000. Many institutions offer children’s savings programs with reward incentives to encourage regular deposits.
• Custodial Checking / Teen Debit Account — Available at most banks and credit unions for children ages 13–17. A joint account with the parent that provides a debit card and basic banking access. An excellent tool for teaching real-world spending, budgeting, and the difference between a debit and credit transaction.
• UTMA / UGMA Custodial Brokerage Account — A Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) account allows a parent or guardian to hold investment assets — stocks, ETFs, mutual funds, and cash — on behalf of a minor. Available at any age. The parent manages the account until the child reaches the age of majority (typically 18 or 21, depending on the state), at which point the assets transfer outright to the child with no restrictions on use.
• Custodial Roth IRA — A Roth IRA opened by a parent on behalf of a minor child who has earned income. Contributions are limited to the lesser of the child’s earned income for the year or the annual IRS contribution limit ($7,000 for 2024–2025). Contributions grow tax-free, and qualified withdrawals in retirement are tax-free. This is one of the most powerful long-term financial tools available to a young person.
• 529 Education Savings Plan — A tax-advantaged investment account designed specifically for education expenses. Contributions grow tax-free and withdrawals are tax-free when used for qualified education costs, including tuition, room and board, books, and K–12 expenses up to $10,000 per year. Unused funds can now be rolled into a Roth IRA for the beneficiary (subject to limits), making this a more flexible option than it once was.

I opened savings accounts for my kids when they were 4 years old at our credit union. Most banks and credit unions have programs designed specifically for young account holders to help teach saving and provide positive reinforcement at an early age. Our credit union used a stamp book: every time they deposited $5.00 they earned a stamp, and milestones along the way came with prizes. At ten stamps, they received two free movie tickets. It was meaningful incentive tied directly to their own actions. I also kept a checkbook register for them to record every deposit and withdrawal — an early, hands-on introduction to tracking a balance.

A basic savings account is a great start, but it only covers one dimension of personal finance. At age 5, I opened a UTMA brokerage account for each of my children at Fidelity. As the parent, I serve as the custodian, but just like the savings account, the child owns the money and is responsible for the taxes on any gains. Any money deposited must be used for the benefit of the child when withdrawn. In most states, once the child reaches the age of majority — typically 18 — the account transfers to them outright. Unlike a trust, which can restrict how and when funds are used, a UTMA account gives the child full control at that point. The key is to have taught them the true value of that money well before they turn 18.

The UTMA account is versatile because it can hold virtually any type of investment — stocks, ETFs, mutual funds, or cash. I recommend opening one at a major brokerage such as Fidelity or Charles Schwab, where the account functions as a full brokerage and gives you access to low-cost index funds. Watching an investment account fluctuate alongside a savings account has been one of the most effective financial teachers I have found for my children. They quickly learned that markets go up and down, that diversification matters, and — crucially — that the stock market is not where you keep money you might need in the near term.

Since this was always intended as a long-term account, I used the decade-plus of time before they could access it to teach compound growth and to help them develop real comfort with market fluctuation. Upon opening the account, I also made them a deal: every dollar they put in, I would match. But no one could withdraw anything until they turned 23 years old.

The final account to consider is a Custodial Roth IRA. This only becomes relevant once your child has earned income, but most people do not realize that earned income does not require a formal W-2 job. Babysitting, shoveling snow, mowing lawns, and helping neighbors with chores all qualify — as long as the work is legitimate and compensated at a reasonable rate. The one caveat is that you, as the parent, generally cannot pay your child for household work unless you own a business and are employing them through it. The Roth IRA works the same way as an adult account; you simply serve as the custodian until the child turns 18.

Final Thought

You do not need to have your own finances completely figured out before starting the money conversation with your children. You just need to start. Families that talk about money openly — who make mistakes together, learn together, and adjust together — raise children who are far better prepared for the financial decisions life will eventually hand them. If they can see and understand our mistakes, perhaps we can help them avoid making the same ones — or at the very least, help them recognize when they are headed down that road.

When your child is ready to take the next step, Learning to Budget and Learning to Invest are written in plain language for teens and young adults.