With a two-year-old at home and our second baby arriving in April, my wife and I have been having more conversations about the kind of financial habits and values we want to build into our own kids.

Right now, my son Cooper thinks money is something that magically appears when Dad taps a card — and that snacks are taxed at approximately 30% under something we call the “Dad Tax.” (If you have toddlers, you know.)

But joking aside, financial literacy doesn’t start with investment accounts — it starts with everyday conversations and habits. The right account structure for saving and gifting is important, and we’re always here to help families choose what account types best fit their goals. But before we talk about account types, the real foundation is literacy — helping children understand how money works and how to use it wisely.

Research shows that children begin forming core money behaviors earlier than most of us realize. Early exposure fosters independence, reducing reliance on parents or guardians. In addition, early education correlates with better credit scores, lower debt delinquency, and higher net worth by age 25. Some studies show children as young as five can grasp basic concepts of saving and spending.

Even more interesting: large classroom-style financial literacy programs don’t always change long-term behavior. As stated by American Society of Pension Professionals & Actuaries; Large classroom-style financial literacy programs often fail to change long-term behavior because they focus on providing knowledge rather than addressing the behavioral, psychological, and situational factors that drive financial decisions. While these programs can improve knowledge and short-term metrics, they frequently fall short in creating lasting habits

Kids learn more from what we model than what we say. Developmental psychology confirms that children’s understanding of money is not linear, but rather evolves through distinct cognitive stages, requiring financial education to be adapted to their maturity level. Foundational habits are often set by age 7, making it crucial to start early with age-appropriate lessons.

Toddlers and Preschoolers (Ages 3–5): “Money Basics”

At this stage, the goal isn’t math — it’s mindset.

  • Involve them in Transactions: Let them hand over cash or a card to a cashier to make the concept tangible.
  • Explain “Why”: When asked, explain that going to work allows you to buy necessities like food and clothes.
  • Sorting: Use coins to teach them about different types of money

Early exposure to saving and goal setting increases the likelihood that children will feel comfortable managing money as adults.

Early Elementary (Ages 6–10): “Awareness and Responsibility”

They begin to think logically and can manage money, understand value, and delay gratification.

  • Help them set short-term savings goals.
  • Show them how money can grow over time (even simple examples of compound growth).
  • Let them make small money mistakes.
  • Start conversations about needs vs. wants.

Financial literacy isn’t built through perfection — it’s built through experience.

Preteens (Ages 11–13): “Planning and Earning”

The relationship between time, effort, and money (earning) and the basics of budgeting.

  • Comparison Shopping: Teach them to read price labels, check unit prices (e.g., price per ounce), and compare quality.
  • Introduce Entrepreneurship: Encourage small businesses like lemonade stands, pet sitting, or yard work.
  • Discuss Advertising: Help them understand that marketing is designed to make them spend.

Teenagers (Ages 14–18): “Financial Independence”

Formal operational; capable of understanding abstract concepts like compound interest, credit, and investment.

  • Open a Checking Account: Give them a debit card to manage their own money for day-to-day expenses.
  • Discuss Budgeting: Involve them in household budgeting to show them the real cost of living.
  • Explain Credit: Teach them that credit is not free money and show them the impact of interest and debt

Parents and Grandparents: The Bigger Picture

I’m often asked about 529 plans, custodial accounts, UTMAs, Roth IRAs for working teens, and other account types. Those tools absolutely have their place — and they can be incredibly powerful when used thoughtfully.

But accounts alone don’t create financially responsible adults.

A well-funded account paired with intentional education is far more impactful than an account without conversation.

For grandparents especially, financial gifts can be deeply meaningful. Often, the most powerful part isn’t just the contribution — it’s explaining why you’re giving it and what you hope it teaches. Financial literacy isn’t just about dollars — it’s about the values and habits behind those dollars.

Practical Principles That Apply at Any Age

Research highlights that financial socialization is most effective when parents act as active, ongoing mentors rather than relying solely on formal education. Financial literacy isn’t about raising perfect investors. It’s about raising confident adults who understand that money is a tool — not the goal. Here are several suggestions

 

  • Normalize talking about money – Silence often creates confusion or anxiety.
  • Model calm decision-making – Kids pick up on stress around money.
  • Teach trade-offs – Every dollar has a job.
  • Encourage generosity – Giving builds perspective and gratitude.
  • Focus on consistency over complexity – Small, repeated lessons matter more than big speeches.

As we prepare to welcome another little one into our home this spring, I’m reminded that financial planning is ultimately generational. The habits we model today ripple forward far beyond our own lifetimes. Ultimately, one of the most powerful ways we can safeguard the wealth we plan to pass down is by raising the next generation to be financially confident, informed, and responsible.

If you’re thinking about setting aside money for a child or grandchild — or simply want ideas on age-appropriate money conversations — I’m always happy to talk through it with you. I’d also genuinely love to hear about your own experiences learning about money — what lessons stuck, what didn’t, and what you’d want the next generation to understand differently.

The greatest financial gift we can give the next generation isn’t just money.  It’s wisdom about how to use it.  And maybe a modest Dad Tax along the way.

Best,

Chad

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This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be sought regarding your individual situation.