Investing for Children:How to Build Wealth for the Next Generation

One of the greatest gifts we can give a child is not a toy, a gadget, or even a savings account. It is the foundation for long-term financial security. While many families think of college funds or traditional savings, investing for children offers something far more powerful: time. And time, more than anything else, is what builds real wealth.

Investing early gives children an advantage that compounds for decades. A small contribution made during childhood can grow into life-changing wealth by adulthood. A child who begins investing at birth gains eighteen years of compounding before they even earn their first paycheck. That early start can mean the difference between financial stress and financial independence later in life.

Why Investing Early Matters

Children have something adults can never get back: years of consistent growth ahead of them. Compound interest allows money to grow exponentially over time, because each year’s gains build upon the previous year’s gains. Even modest, consistent contributions can multiply dramatically when given enough time.

For example, investing one hundred dollars a month for a child from birth to age eighteen can grow to around forty-eight thousand dollars by adulthood. If left untouched, that same investment can exceed a quarter million dollars by age forty and surpass one million by age sixty-five. This happens not because of large contributions, but because of time in the market.

Choosing the Right Account for a Child

There are several types of accounts you can use when investing for a child, each with different benefits depending on your goals.

A custodial brokerage account (UGMA or UTMA) is one of the most flexible and straightforward options. The adult manages the account until the child becomes a legal adult, at which point the child takes ownership. This account allows investment in stocks, ETFs, and other assets, and the funds can be used for anything that benefits the child, whether that is education, a first home, a vehicle, or a business opportunity.

A 529 College Savings Plan is designed specifically for education expenses and offers tax-free growth and tax-free withdrawals when used for qualified educational purposes. This option is ideal for families who know they want to prioritize college planning.

A Custodial Roth IRA is one of the most powerful accounts available, but it requires that the child have earned income. This could include traditional part-time jobs or self-employment such as babysitting, social media income, or work in a family business. Because Roth IRA growth is tax-free and withdrawals in retirement are also tax-free, this account can create extraordinary wealth over many decades.

Choosing Investments for Children

Children do not need complicated portfolios. The simplest and most effective strategy is to invest in diversified, long-term assets such as index funds and ETFs. Examples include broad funds like the S&P 500 ETF or total market ETFs, which provide exposure to hundreds or thousands of companies at once.

Some families also like to involve children by allowing them to choose a small portion of their investments in companies they recognize, such as Disney, Apple, or Nike. This approach helps build interest and gives children a tangible sense of ownership in the brands they love.

Teaching Kids the Principles Behind Investing

Education is just as important as the money itself. Children benefit when investing is explained in ways they can understand. Concepts such as long-term growth, compounding, and patience are easier to grasp through stories and real-world examples.

Parents can show children how a chart grows over time, explain that investing means owning part of a company, or review the account together once a year. These conversations help build financial confidence long before adulthood.

How Much to Invest

There is no required minimum amount to begin investing for a child. Even small contributions, such as twenty-five or fifty dollars per month, can create meaningful growth over time. The consistency matters far more than the size of each contribution.

A simple example illustrates the power of consistency. A child receiving one hundred dollars a month invested at an eight percent annual return can reach around forty-eight thousand dollars by eighteen, a quarter million by forty, and well over one million by retirement age. What begins as a small monthly deposit becomes an inheritance of financial security.

Creating a Family Tradition of Investing

One way to keep a child engaged in the process is to make investing part of annual family traditions. Instead of only giving toys or gifts, families can make financial contributions on birthdays or holidays, review the account together at the start of each year, or celebrate milestones in the investment growth. These small moments create a mindset of responsibility and empowerment.

Final Thoughts

Investing for children is one of the most impactful decisions a family can make. It provides not only money, but confidence, knowledge, and long-term opportunity. With a simple strategy, the right account, and consistency, even modest contributions can become a foundation for generational wealth.

Every parent wants to prepare their child for the future. Teaching them about money and investing early gives them a powerful head start—one that can influence their entire financial life. The first step today by educating yourself and making a simple plan. Your future self will thank you.