Turning a small weekly allowance into a future seven-figure portfolio might sound ambitious—but it’s entirely achievable with time, compounding growth, and consistent financial habits. The key lies in starting early, using tax-advantaged accounts, and teaching children the value of money management.
“The earlier you begin, the more powerful compound growth becomes,” says Prince Dykes, founder of the Global Children Financial Literacy Foundation. “Opening a custodial account and investing in a low-cost S&P 500 index fund can make a huge difference over time.”
Whether you have $25 a week to save or plan to contribute up to the annual gift-tax limit, the strategy remains the same: automate, invest early, and let compounding do the work.
Key Takeaways
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Custodial Roth IRAs, 529 plans, and UTMA/UGMA accounts each offer unique tax advantages that can multiply a child’s savings.
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Even part-time or summer job earnings make your child eligible for a custodial Roth IRA—unlocking decades of tax-free growth.
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Consistent contributions and early financial education can turn modest amounts into long-term wealth.
Start Early to Maximize Compounding Growth
Time is the single most powerful factor in wealth building. Money invested during a child’s early years has decades to grow before they need it.
For example, investing $250 a month starting at birth can grow to nearly $700,000 by age 40 at an average annual return of 8%. Waiting until age 10 to begin reduces that amount to less than $200,000—a powerful illustration of how early action multiplies results.
Here are several ways to give your child’s money a head start:
1. 529 College Savings Plans
A 529 plan allows tax-free growth and tax-free withdrawals when used for qualified education expenses. Parents can even “superfund” the account by contributing up to five years’ worth of gifts at once—up to $95,000 in 2025—without triggering federal gift tax.
This front-loaded approach accelerates the first decade of compounding, providing a major advantage for college-bound children.
2. Custodial Accounts (UTMA/UGMA)
Accounts established under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) let parents invest unlimited after-tax dollars in a child’s name.
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The first $1,350 of unearned income (such as dividends or interest) is tax-free.
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The next $1,350 is taxed at the child’s rate, often much lower than the parents’.
These accounts are flexible, allowing investments in stocks, mutual funds, or ETFs. However, funds legally belong to the child once they reach the age of majority—typically 18 or 21, depending on the state.
3. Custodial Roth IRAs
Once a child has earned income, they qualify for a custodial Roth IRA—even from babysitting, lawn care, or content creation. Parents can contribute up to $7,000 per year or the total annual earned income, whichever is less.
Earnings in a Roth IRA grow tax-free, and qualified withdrawals remain tax-free in retirement. Starting at age five instead of 25 can mean the difference between $1 million and $200,000 by retirement age—simply due to time in the market.
Parents can fund the account as long as the child reports legitimate earned income.
4. Cash-Value Life Insurance for Children
Permanent life insurance—such as whole life or indexed universal life (IUL)—can also serve as a long-term wealth-building tool.
These policies lock in low premiums for life and accumulate tax-deferred cash value that can be borrowed against for education, a home purchase, or retirement.
Because policy cash value and dividends don’t count toward financial aid calculations, these plans can also provide strategic advantages for families planning future college funding.
Teaching Kids Lifelong Financial Skills
Building wealth is about more than investing—it’s about nurturing sound financial habits early.
Start with savings jars or envelopes for younger children to visualize how money grows. As they mature, move to prepaid debit cards with spending limits or budgeting apps to track expenses.
Encourage teens to take on small jobs like tutoring, babysitting, or mowing lawns—not only to earn Roth-eligible income but also to develop entrepreneurial thinking.
“Let them earn, spend, and even fail,” says Liz Frazier, financial planner and author of Beyond Piggy Banks and Lemonade Stands. “It’s the safest time to learn these lessons because mistakes carry no lasting consequences.”
Celebrate milestones—such as reaching $1,000 or $10,000 in savings—to reinforce motivation. As college approaches, discuss high return-on-investment majors and minimizing student loans, allowing early-career earnings to fuel investments rather than debt repayment.
Important Tax Note
As of 2025, the IRS annual gift exclusion allows individuals to give up to $19,000 per year tax-free. Two parents can contribute a combined $38,000 per child each year without triggering federal gift tax reporting requirements.
The Bottom Line
Helping your child build wealth doesn’t require a trust fund—it requires time, discipline, and education. By combining early investing, tax-advantaged accounts, and practical money lessons, parents can set their children on a path toward lifelong financial independence.
While no strategy guarantees millionaire status, starting now dramatically improves the odds. Plant the seeds early, nurture them with consistency, and watch your child’s financial confidence—and balance—grow over time.
Frequently Asked Questions
Q1: How can small weekly savings grow into significant wealth for children?
A1: Consistent saving and investing from an early age, combined with time and compounding growth, can turn modest weekly contributions into substantial wealth over decades. Early action dramatically multiplies returns.
Q2: What are the best investment accounts for children?
A2: Key options include 529 college savings plans, custodial accounts (UTMA/UGMA), and custodial Roth IRAs. Each offers unique tax advantages and allows long-term growth. Permanent cash-value life insurance can also be used strategically for long-term wealth.
Q3: How does starting early affect compounding growth?
A3: Time is the most powerful factor in wealth building. Money invested early has more years to grow, producing exponentially larger balances than if investing begins later. For example, starting investments at birth can yield more than three times the wealth of starting at age 10.
Q4: Can children contribute to a Roth IRA?
A4: Yes. Children with earned income—even from babysitting, lawn care, or part-time jobs—can have a custodial Roth IRA. Contributions grow tax-free and qualified withdrawals remain tax-free in retirement.
Q5: How can parents teach kids financial responsibility?
A5: Start with savings jars or envelopes for younger children, then move to prepaid debit cards or budgeting apps. Encourage small jobs to earn income, and celebrate milestones to reinforce motivation and financial habits.
Q6: What are the benefits of 529 college savings plans?
A6: 529 plans offer tax-free growth and withdrawals for qualified education expenses. Parents can front-load contributions to accelerate compounding, providing a significant advantage for college savings.
Q7: Are there tax considerations for gifting money to children?
A7: Yes. As of 2025, individuals can gift up to $19,000 per child per year tax-free. Two parents can contribute $38,000 per child annually without triggering federal gift tax reporting.
Q8: Can permanent life insurance help children build wealth?
A8: Permanent life insurance, such as whole life or indexed universal life policies, accumulates tax-deferred cash value. It can be used for future expenses like education, home purchases, or retirement, while providing strategic advantages for financial planning.