Kids and Money: What to Teach by Age and Which Accounts to Use

Teaching children about money works best when it matches what they can grasp at each age: self-control and waiting first, habits in the elementary years, then real decisions with real money as teenagers. The accounts you open for them are a separate decision, and the main difference among them is who controls the money and when. A custodial account becomes the child's at adulthood, a 529 plan stays with the owner, and a custodial Roth IRA requires the child to have earned income.

What to teach at each age

The Consumer Financial Protection Bureau's research groups financial capability into three building blocks that develop in overlapping stages: early childhood (ages 3–5), middle childhood (ages 6–12), and the teen and young adult years (ages 13–21).¹

Stage	What develops most	What that looks like at home
Ages 3–5	Executive function: self-control, working memory, planning1	Waiting games, saving for a small item in a clear jar, choosing between two things
Ages 6–12	Habits and norms, picked up from family, peers and media1	A regular allowance, letting them spend it badly, talking about prices at the store
Ages 13–21	Financial knowledge and decision-making1	A first bank account, a paycheck, comparing costs before a big purchase

The middle years get less attention than they deserve. Children absorb money norms then by watching, which means how parents talk about money (or avoid talking about it) teaches more than any lesson plan.

Custodial accounts (UTMA/UGMA): flexible, but the child gets control

A custodial account under a state's Uniform Transfers to Minors Act or Uniform Gifts to Minors Act holds assets for a child, managed by an adult. The money can be used for anything that benefits the child, but control passes to the child at the age of majority set by state law, and from then on the money can be used for any purpose.²

Investment income in a child's name also has its own tax rule. For 2026, a child's unearned income above $2,700 can be taxed at the parent's rate when that rate is higher, under the rule usually called the kiddie tax.³

Who this is not for: parents who want the money reserved for college, or who are not comfortable with a young adult deciding how to spend it.

529 plans: education-first, with a retirement exit

A 529 plan is a tax-advantaged education savings account. The owner, usually a parent, keeps control of the account. The long-standing worry was money left over if a child skips college or gets a scholarship.

SECURE 2.0 added an exit. Since 2024 a 529 beneficiary can roll money into a Roth IRA in their own name if the account has been open at least 15 years, the transfer goes directly between institutions, and contributions made in the last five years are excluded. Each year's rollover counts against the Roth IRA annual limit, and the lifetime cap is $35,000.⁴

The practical rule: if a 529 is likely, open it early, even with a small amount. The 15-year clock starts when the account is opened, not when it is funded heavily.

Custodial Roth IRA: only with earned income

A child can have a Roth IRA, managed by an adult until adulthood, but contributions cannot exceed what the child earns in the year.² Babysitting, lawn mowing or a summer job can count; an allowance or a gift does not. For 2026 the overall IRA limit is $7,500.⁵

Example: a 15-year-old who earns $3,000 from a summer job can have up to $3,000 contributed for 2026. Keep records of the work and the pay.

Related sections

Parents working out how saving for children fits next to their own retirement can start with personal finance and on investing. Couples deciding who owns which account, and who is named as beneficiary, will find those rules under marriage and money.