Post Updated on July 15, 2025 by Taylor.
Did you know your kids’ financial habits are mostly set by age 7?
Until recently, I didn’t, either. And as a dad to a 7-year-old, that fact hit me hard. It made me reflect on what kind of habits I’m modeling and whether I’m doing enough to set my daughter up for success both financially and in terms of her relationship with money.
This is one of those stats that’s meant to wake us up a little. But I think it also opens the door to a very productive conversation. This is a chance to get intentional about how we talk to our kids about money, how we save for them, and how we introduce investing in ways they can actually understand.
So that’s where we’re headed in this post: a fresh look at why starting early matters and how you can give your kids a financial foundation that lasts.
And hey, if your kids are older than seven, no need to panic. You’re not behind. These are conversations worth having at any age. The sooner you start, the more empowered you’ll all feel.
Understanding How Kids Learn About Money
Back in 2018, Purdue University published a study on children and financial behavior. One of the big takeaways was this: by age three, most kids already have a basic understanding of what money is.
As a parent of a seven-, five-, and three-year-old, I’ve seen this firsthand. Kids start to make connections early between value and exchange. They understand, for the most part, what something is worth and how we get it. And they’re paying attention. Whether it’s how often we swipe a credit card, what we say about prices, or how many Amazon boxes show up at the door, they’re taking it all in.
By the time kids reach age seven, many of their foundational financial habits are already in place.
That doesn’t mean those habits can’t change (I’ve changed plenty of my own as an adult), but it does mean that what we model and teach early-on really matters.
For me, that looks like setting boundaries and helping my kids understand how money is earned, spent, and invested. And I hear this from clients all the time, too. Parents want to know how to teach their kids about money in a way that sticks. Often, it’s tied to practical goals like saving for college. Sometimes it’s deeper; for example, about legacy or giving them the tools we wish we’d had.
Most parents of young kids are part of the young Gen X or Millennial generation. This is a group of people who understand, firsthand, what it’s like to carry student loan debt. Many of us feel a little duped by the whole system, like we got sold a flawed version of the college dream. That frustration has created a shift. Parents today are more interested in helping their kids start strong financially, and in doing so, they’re also helping themselves build a more stable and intentional future.
UGMA and UTMA Accounts: Teaching Ownership Through Investing
One of the first tools I recommend when parents want to start investing for their kids is a UGMA or UTMA account. These are custodial accounts—Unified Gift (or Transfer) to Minors Accounts—that allow you to invest on behalf of your child while still maintaining oversight.
It’s kind of like a brokerage account with training wheels. You, the parent, act as the custodian and manage the funds, but the money technically belongs to your child. There’s no cap on how much you can contribute, and while there are gift tax limits to be aware of, there are no strict income or usage restrictions. You’re not locked into using it for education like with a 529 plan, which gives it a lot of flexibility.
You can keep it simple with a money market fund, or you can invest in individual stocks, ETFs, or mutual funds. What I love most is how naturally this account invites a conversation about ownership. If your kid is obsessed with Nike or Apple, you can buy them shares in the company and talk about what it means to own a piece of that company. It’s a great entry point into the idea of investing and into the difference between ownership and lending, which is the core distinction between stocks and bonds.
That conversation evolves with age. You can ask: “Why do you want to invest in this? What do you think this company is worth? What do you think makes it grow?” You’re engaging with real companies and making real choices, which, of course, inspires real learning.
One downside:
Once your child hits the age of majority—21 in Colorado—that money legally becomes theirs. No conditions, no strings. For some families, that can feel risky.
I once had a client whose son was turning 21 right as he was heading off for a semester abroad in Europe. She had diligently funded a UGMA account for years, but was understandably nervous about him getting access to that money while traveling. Fortunately the child was more mature than his mother expected and when he got back stateside, she was able to give him the money properly, but it was a reminder that you don’t have control forever.
Here’s the key:
Don’t just fund the account—use it. Use it as a teaching tool. Talk about what’s in it, why it’s there, and what it’s for. Because when that account eventually becomes theirs, your guidance will have mattered more than the dollar amount.
529 College Savings Plans: A Smart Way to Pre-Fund Education
Another great way to set your kids up for financial success is through a 529 college savings plan. These accounts are built specifically for education expenses, and they can be incredibly powerful when used intentionally.
At their core, 529 plans are a lot like Roth IRAs. You contribute after-tax dollars, the money grows tax-deferred, and if it’s used for qualified education expenses—like tuition, books, room and board, or even certain technology purchases—the withdrawals are completely tax-free.
Some states, like Colorado, even offer a state income tax deduction for contributions, which adds another layer of benefit. Others, like New York or California, don’t offer that upfront perk, but the tax-free growth and distributions still apply across the board.
I had one client who came into a windfall and wanted to pre-fund their elementary-aged kids’ future education. We ran the numbers, found a contribution amount that aligned with their financial plan, and gave them the peace of mind that they were setting their children up for success down the road without jeopardizing their own goals.
One of the great features of the 529 is that it is transferable.
If your child doesn’t need the funds (maybe they earn a scholarship or take a different path) you can transfer the account to another child or qualifying family member. That kind of portability is a huge win for families with multiple kids or shifting educational plans.
The funds can be used for a wide range of education expenses beyond just tuition, too. As I mentioned earlier: room and board, books, school-required tech, and even some trade school or vocational program costs are acceptable. So while it’s not an all-purpose savings account, it does allow for a thoughtful range of uses.
That said, there are some limitations worth considering:
- Investment options are limited. Each state has its own 529 plan with a set list of investment choices—often mutual funds or target-date portfolios. You generally can’t invest in individual stocks, and you might have fewer customization options compared to a standard brokerage account.
- Portability comes with trade-offs. You’re allowed to use a plan from another state, which might offer better investment choices. But if you do, you typically forfeit any state income tax benefit your home state offers.
- Use-it-or-lose-it pressure. These accounts are earmarked for education. If your child doesn’t go to college or doesn’t need the full amount, unused funds may sit untouched or create tension. And while scholarships are amazing, the full-ride is rare. Statistically, less than 1% of students receive full academic or athletic scholarships.
One exciting update: 529s can be rolled into Roth IRAs
Under new federal rules, leftover 529 funds can now be rolled into a Roth IRA for the beneficiary, within certain limits. That’s a big deal. It means even if your child doesn’t use the full amount for school, they can still benefit long-term through retirement savings.
Bottom line? The 529 is a strong, tax-advantaged way to build an intentional education fund. Just make sure it aligns with your overall strategy, your state’s rules, and your family’s actual plans. Like any financial tool, it works best when it’s part of a bigger picture.
Exploring Permanent Life Insurance for Long-Term Flexibility
While not as common as UGMAs or 529 plans, a permanent life insurance policy can be another tool to support your child’s financial future, especially when structured strategically.
Here’s how it works: Unlike a term policy, which covers a specific time frame and only provides a death benefit, a permanent policy builds cash value over time. That means a portion of the premium you pay goes toward insurance coverage, while the rest grows in a cash account inside the policy.
Over time, that cash value becomes a financial asset you can borrow against—often tax-free—if structured properly.
For parents, this can be appealing. That invested cash value can be tapped later on for college expenses, a down payment on a home, or other major milestones. The policy is owned by you, not the child, which gives you flexibility. And because life insurance for young children is typically very inexpensive, thanks to low risk on the actuarial side, it can be a relatively affordable long-term play.
Consult with a Financial Advisor to Choose the Right Policy
There are several types of permanent life insurance policies, including whole life, universal life, and indexed universal life (IUL), among others. Each comes with its own mechanics for how the cash value grows, and how flexible the premiums can be.
Done right, you can build something that’s relatively low-maintenance and designed to last a lifetime. If you work with a Certified Financial Planner®, they can walk you through the policy that would best align with the rest of your financial plan.
There are some important caveats:
- It’s not highly liquid. Early on, cash value grows slowly. This isn’t a tool you want to use for short-term savings or quick access.
- It can be expensive. Compared to a 529 or UGMA, you’re paying for insurance coverage in addition to growth, so there’s an added layer of cost.
- It may impact financial aid. Because it’s considered an asset (depending on ownership structure), it could factor into FAFSA or other need-based financial aid calculations.
- Growth potential is modest. You’re likely not going to see the same return you might from long-term investing in the market.
Still, for some families, a properly structured life insurance policy can be a meaningful part of a larger plan. I’ve seen it used successfully to create a tax-advantaged pool of money, to lock in coverage while kids are young and healthy, or even as a tool to help them understand the value of financial protection and delayed gratification.
The Benefit No One Likes to Talk About
And, of course, while no one likes to talk about it, these policies also provide a death benefit—offering a level of protection in the worst-case scenario. Hopefully it’s never needed, but for some parents, that additional peace of mind matters.
As with anything, this tool is about fit. It’s not for everyone. But used mindfully and with clear intent, it can be a strong piece of a child’s long-term financial puzzle.
Roth IRAs for Kids: A Smart, Long-Term Investment
One of the most underrated ways to set your child up for long-term financial success is through a Roth IRA. These accounts are typically associated with retirement, but when used early (and creatively) they can become a powerful tool for generational wealth.
The main catch is this: your child needs earned income to contribute.
That means they need to be doing real, compensable work. For my business-owner clients, this opens up some interesting opportunities. You can hire your kids to do age-appropriate, meaningful tasks in your business—things like shredding paper, organizing supplies, cleaning, or helping with light admin—and pay them a reasonable wage. As long as it’s legit work and properly documented, that income can be contributed directly into a Roth IRA.
Why go through the effort? Because Roths offer tax-free growth and tax-free withdrawals in retirement. They’re one of the most flexible and future-friendly accounts out there. Start early, contribute consistently, and your child can benefit from decades of compounding without owing a penny in taxes on the gains if the money stays in the account until retirement.
Here’s what makes Roths for kids especially compelling:
- You can invest in a wide range of assets—stocks, ETFs, mutual funds, and more.
- Contributions (not earnings) can be withdrawn at any time, penalty-free.
- In some cases, funds can even be used for qualified education expenses, making it a potential backup or supplement to a 529.
Of course, there are some drawbacks to keep in mind:
- Earned income is required. No birthday money or allowance counts.
- It’s a long game. These funds are ideally untouched until retirement, so this isn’t a fit for short- or medium-term savings or education planning.
- Contribution limits apply. In 2025, the annual cap is $7,000 or the amount of earned income, whichever is lower.
Still, I’ve seen families who layer this in alongside a UGMA or 529. It’s a great way to diversify your child’s future financial toolkit while encouraging them to think about work, value, and long-term reward.
It’s also a subtle but powerful mindset shift. Helping your child build retirement savings before they’re even out of middle school? That’s generational thinking in action.
Using Trusts for Long-Term Financial Planning
This last tool isn’t a specific type of account, per se, but it might be one of the most powerful ways to plan for your child’s future: a trust.
A trust allows you to go beyond saving or investing for your kids because it allows you to define the terms under which they receive and manage those assets.
Unlike a UGMA, which automatically transfers to the child at 21, or a 529, which must be used for education, a trust gives you the ability to tailor the plan to your family’s values and vision. You can determine how the money is used, when it becomes available, and what milestones your child needs to meet along the way.
Let’s say you want to create a brokerage account for your kids, but with some guardrails.
With a trust, you can serve as the trustee and control how the assets are managed and distributed. You can build in rules: finish college, and you receive a set amount. Reach age 30, and another portion unlocks. You can even create conditions around employment, sobriety, or financial counseling—whatever fits your family’s reality.
I had a client whose parents set up trusts for their four children, each with different provisions. Two of the kids received their funds outright, no strings attached. The other two had more structured timelines and requirements. That flexibility allowed the parents to reflect each child’s unique needs and maturity, which made a huge difference in how those assets were received and used.
Trusts are especially valuable if you have concerns about a child’s financial behavior, or if you want to build in protection for specific situations—like substance abuse, divorce, or poor money management. You’re not just handing over the keys to the castle. You’re helping them grow into responsible stewardship of what you’ve built.
And while setting up a trust takes more time and legal coordination upfront, it can be one of the most customizable and protective moves you make.
For families thinking long-term, and wanting to instill both support and accountability, trusts are worth a serious look.
Practical Financial Habits and Everyday Tools for Kids
Let’s shift gears from long-term strategies to everyday habits.
One of the simplest ways to begin is with a basic savings account. This was actually how my mom introduced me to money. She opened a checking account for me when I was a toddler, and over time, she taught me how to balance a checkbook, write checks, and deposit birthday or chore money.
It’s not exactly centered on investing, but it’s an excellent teaching tool.
A savings account doesn’t earn a ton of interest, but that’s not really the point. It creates visibility. It’s a tool your child can use with you and it gives you a shared space to talk about what happens when money comes in and when it goes out.
Teaching Tools We Didn’t Have as Kids
Today’s parents also have access to a whole ecosystem of tech tools we didn’t grow up with. These apps can help reinforce everything from saving to spending to the all-important skill of budgeting. And they give parents the ability to guide their kids while letting them take some hands-on responsibility.
Money Apps for Kids (That Are Financial Advisor Approved):
- Greenlight – A kid-friendly debit card with parental oversight and savings goals built in.
- GoHenry – Another great platform with real-time controls and spending alerts.
- BusyKid – Especially useful if you want to tie allowances to chores. It even lets kids “invoice” their parents for completed tasks (which, trust me, they won’t forget to do).
These platforms bring structure to conversations that can otherwise feel abstract. And for families trying to teach the connection between effort and reward, they’re an awesome accountability tool.
Understanding Wants vs. Needs
One of the biggest mindset shifts to help your kids develop is the difference between wants and needs. I’ve talked about this a lot with my own daughters, especially my 7-year-old, who’s just starting to get really curious about money and what things cost.
It started with her school math lessons: four quarters add up to a dollar, that kind of thing. But pretty quickly, it turned into real-world questions. She’s asked if we’re millionaires, which was a bit tricky to navigate considering the value of a ‘Million Dollar House’ is not quite what it used to be. But, the point is that she’s starting to get curious about how money affects our lives and what kind of identity, if any, to build around that.
These moments are great teaching opportunities, even if they feel a little awkward. I try to lean into them. One recent example: we were buying a car, and she wanted to know how we chose that specific one. So I walked her through our thinking: what we needed, what we were willing to spend, and why this option fit. That kind of transparency builds trust and it invites your kids into the reality of decision-making.
Books That Spark Great Conversations
If you’re looking for more ways to connect on this topic, there are some excellent books out there for kids and teens. A couple favorites:
- Money Ninja – A fun, story-based book that introduces the basics of saving and spending.
- Rich Dad Poor Dad for Teens – A simplified version of the classic, perfect for middle or high schoolers. It introduces ideas like assets vs. liabilities and thinking like an investor.
Books like these can help normalize the conversation around money and give your kids language for things they’re already curious about.
Look for “Money Moments”
The last piece of advice I’ll share here is something I call ‘money moments.’ These are small, everyday situations where a financial lesson naturally fits in. They might happen at the store, while budgeting for a birthday gift, or negotiating how much they’ll earn for cleaning the bathroom.
You don’t have to overthink it. The goal isn’t to lecture. It’s to be present, to notice the teachable moment, and to give your kids a little insight into how money works in the real world.
That’s how good habits are built.
Encouraging Entrepreneurship in Your Kids
One of the most fun and impactful ways to teach kids about money is by encouraging entrepreneurship. It can be really simple, but it gives them the chance to think creatively about value and exchange.
Over the Fourth of July weekend, we had a chance to turn a fun idea into a meaningful money lesson. My daughter, her younger sister, and their cousin decided they wanted to set up a lemonade stand. They took the lead from the start — brainstorming signs, choosing the best location (a trailhead near Steamboat Springs turned out to be perfect), and figuring out their menu and pricing.
Before they launched, I introduced one more idea: thinking beyond cash. Not everyone carries bills these days, so I offered to let them use my Venmo account for payments. It was a hit — and in under two hours, they made $57.
Each girl had a role, and after a successful day, they were beaming with pride. But then came a bigger lesson: the cost of goods sold. While they brought in $57, they had to reimburse us for the supplies they used. Suddenly, profits weren’t quite as big — but that moment of realization was gold. They learned what it really means to run a business: planning, teamwork, responsibility, and understanding expenses.
These small experiences can lay the foundation for lifelong financial habits.
And they’re a great reminder that teaching kids about money doesn’t always have to come from a textbook — sometimes, it starts with a lemonade stand on a trail.
Entrepreneurship is a muscle. The earlier a child starts flexing it, the more confident they’ll become. Whether it turns into a future career or just teaches them how to manage and value their time, it’s a skill worth nurturing.
And who knows? That lemonade stand might just be the first step on a path that leads to something even bigger.
Conclusion: Lead by Example, One Step at a Time
At the end of the day, the most powerful thing you can do for your child’s financial future is lead by example. Kids are sponges. They absorb what you say, but more importantly, they absorb what you do.
If you talk about money with stress, shame, or scarcity, they’ll pick up on that. If you treat money like a scoreboard or a source of status, they’ll learn that too. But if you’re open, honest, and consistent—even in the messy moments—they’ll have a much healthier relationship with money as they grow.
Now, that doesn’t mean you need to overshare. Your child doesn’t need to carry your financial burdens or act as your therapist. But you can let them into your thinking. You can show them what it looks like to earn, to spend with intention, to save up for something meaningful. And yes, if you’re asking them to hold back on spending while Amazon delivers to your door five days a week, they’ll notice the disconnect.
Sometimes parents tell me they don’t know where to start.
My advice is always the same: start small. If your child wants a $60 Barbie Dreamhouse, show them how to earn the first $3. Then the next $5. Teach them how to “pack the piggy bank” one dollar at a time. These moments add up.
If you want support, know that you’re not alone.
At Four Points Wealth, we regularly help clients navigate these conversations. We’ve had kids join the call. We’ve built plans with their involvement in mind. When kids are included in the conversation, money stops feeling like a mystery.
This isn’t about creating perfect little investors or raising financial prodigies. It’s about giving your kids the confidence, language, and tools to thrive.
That’s the kind of wealth that lasts.
About the Author: Taylor Leary, known as the Millennial Financial Advisor, is a Certified Financial Planner ® in Denver. He passionate about empowering his generation to make smart financial decisions. Taylor helps high-income professionals and ambitious investors build wealth, manage risk, and create lasting financial stability.
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