8 Powerful Ways Your Child Can Build Wealth (That Most Parents Miss)

Ever looked at your child and wondered how to set them up for financial success? You’re not alone. As a parent, I’ve spent countless hours researching how my kids can build wealth from an early age – not just to make them rich, but to give them options and security in life

It’s crazy to think that a kid who starts investing when they are 14 could be a millionaire by the time they retire if they don’t add any more money after they turn 19. That’s the magic of compound interest and starting early.

Let’s dive into the strategies that can transform your child’s financial future, even if you don’t consider yourself a money expert.

The Life-Changing Power of Starting Young

Imagine that your teen puts $6,000 into a Roth IRA every year from 14 to 19 years old, which is only five years. With an average return of 10% in 2010 (which matches historical S

Here’s where it gets incredible – if they never invested another cent and just let that money compound until age 65, they’d have nearly $3 million ($2937024.37 to be exact).

As Jared Tanimoto, founder of Sedai Wealth, says, “The hardest part is starting. Everything else builds from there”

8 Financial Accounts to Help Your Child Build Lasting Wealth

1. 529 College Savings Plan

Best time to open: When your child is born

A 529 plan is one of the easiest ways to keep your child from getting into a lot of debt from college. You don’t have to pay taxes on the money you put in or take out if you use it for qualified education costs.

If you invest just $2,000 annually from birth until they’re 18, with a 10% average return, they’ll have over $100,000 for college. Even $1,000 per year yields over $50,000!

Plus, most states let you deduct contributions from your state-taxed income, which saves you money right away on your taxes.

2. Checking Account

Best time to open: Ages 8-10

A checking account won’t directly make your child rich, but it teaches crucial money management skills they’ll need to build wealth.

Many parents make a critical mistake: they only give kids income without expenses. This creates terrible spending habits since kids never learn to budget for necessities.

Try this instead: Give your child a larger allowance (say $100 instead of $20), but charge them for “expenses” like rent, food, and utilities. Make them physically transfer the money or write you a check, just like they’ll do as adults.

Greenlight is an excellent banking account for kids that offers 1% cash back on purchases with their debit card in certain plans, teaching them about compound growth firsthand.

3. High-Interest Savings Account

Best time to open: Same time as checking account (ages 8-10)

Every wealthy adult has an emergency fund, so why not teach your child to build one? Open a high-yield savings account and have them set aside a percentage of their income each month.

The goal isn’t to prepare for a financial emergency next month – it’s to establish the saving habit that will serve them throughout life.

4. Roth IRA

Best time to open: As soon as they have earned income

A Roth IRA is possibly the most powerful wealth-building tool for young people. Contributions grow tax-free, and withdrawals in retirement are also tax-free.

The catch? Your child needs earned income to contribute. However, if you own a business (even a part-time one), you can hire your child. This creates several benefits:

1. Reduces your taxable business income
2. Allows your child to contribute to a Roth IRA
3. If you pay them less than the standard deduction (around $13,000), they might owe little to no federal income tax

I love Robinhood for youth Roth IRAs because they offer a 1% match on contributions with a basic account, or a 3% match with Robinhood Gold.

5. Taxable Brokerage Account

Best time to open: Same time as Roth IRA

While a Roth IRA is perfect for teaching passive investing (buying index funds and holding long-term), a regular brokerage account lets you teach more advanced investing concepts:

• How to research stocks
• Using stop orders and limit orders
• When to take profits or cut losses
• How to diversify across different types of investments

A recent Gallup poll found about 61% of Americans own stock, meaning 39% don’t. By teaching your child how to use a brokerage account, they’ll be far more comfortable than their peers with investing by adulthood.

6. Credit Cards

Best time to open: A year after they start working

Credit cards are tools – they can be dangerous or useful depending on how they’re used. By opening a basic, student-oriented credit card with your teen, you can:

• Teach them to pay balances in full each month
• Help them establish good credit early
• Show them how to use credit card rewards wisely
• Create another defense against financial emergencies

Just make sure to teach the fundamentals first: investing in their Roth IRA and brokerage account should come before introducing credit cards.

7. Credit Builder Loan

Best time to open: Optional, typically late teens

Credit builder “loans” aren’t really loans – they’re more like forced savings with a credit-building benefit. Here’s how they work:

1. You open an account with a credit builder company like Self
2. They pull money from your checking account monthly
3. The money goes into a savings account or CD in your name
4. At the end of the term, you get your money back (minus fees)
5. Meanwhile, the company reports your payments as an installment loan, building credit history

For a small fee, your child can build excellent credit history without taking on actual debt.

8. Health Savings Account (HSA)

Best time to open: When they’re 18-26 and covered under your family health plan but no longer a dependent

HSAs offer triple tax advantages:

• Contributions are tax-deductible
• Growth is tax-free
• Withdrawals for medical expenses are tax-free

The requirements? They must be covered by a high-deductible health plan. The interesting opportunity comes when your adult children (18-26) are covered by your family health plan but are no longer your tax dependents – they can open their own HSA.

Many Americans now use HSAs as secondary retirement accounts, knowing medical expenses in retirement are inevitable. One estimate found the average 65-year-old couple today could expect to spend nearly $390,000 on healthcare in retirement.

Beyond Just Opening Accounts: Building Financial Habits

Opening these accounts is just the beginning. Here are key habits to develop alongside them:

Automate Savings and Investing

“Automate your saving and investing so it happens without effort,” advises Tanimoto. Setting up automatic transfers ensures money is set aside before it’s spent.

Choose Simple, Low-Cost Investments

For most children and teens, low-cost index funds are ideal. They provide broad market exposure with minimal fees and historically strong returns.

Robo-advisors can also be a great option for a hands-off approach that still teaches the value of consistent investing.

Avoid Keeping Too Much in Cash

“One of the biggest mistakes is not actually investing. I see parents leave money in cash or overly conservative accounts for years,” Tanimoto warns. “Inflation chips away at it the whole time.”

Teaching kids about inflation and the need for growth investments is crucial for long-term wealth building.

Common Mistakes to Avoid

1. Waiting too long to start: The power of compound interest is strongest over decades.
2. Not involving your child in the process: They need to understand what’s happening to develop their own financial skills.
3. Focusing solely on college savings: While important, retirement savings often yield better long-term results due to longer time horizons.
4. Ignoring your own retirement: Your financial security must come first, or your kids will have an unwelcome houseguest when they’re trying to raise their own children.
5. Making things too complicated: Keep investment strategies simple, especially at first.

Real-World Impact

Consider this story from my own family: My sister started a Roth IRA for her son when he was 15, contributing the maximum $6,000 annually from his summer job earnings for just 4 years. Now at 25, that account has already grown to over $65,000 without any additional contributions. By retirement, it could be worth millions.

Final Thoughts

Building wealth for your child isn’t about creating trust fund babies or encouraging materialism. It’s about giving them financial freedom, options, and security in an increasingly uncertain world.

The days of working 45 years for one company and retiring on a pension are long gone. Today’s children must be prepared to navigate a complex financial landscape and largely fund their own retirements.

By opening these accounts early and teaching your children how to use them wisely, you’re not just giving them money – you’re giving them knowledge, habits, and confidence that will benefit them throughout their lives.

Remember, as Brian Davis writes, “Your retirement planning must come first, or your kids will have an unwelcome houseguest just as they’re trying to raise their own children.” Balance is key.

What financial accounts have you opened for your children? Which ones have worked best for your family? I’d love to hear your experiences in the comments!