My Kids Are 4 and 7. Should I Be Investing in Them Already?

Most parents think about saving for their children's future in terms of college costs, which makes sense given that the average annual cost of a four-year public university now exceeds $28,000 per year according to the College Board . But the case for investing for children goes beyond college. A child who has an investment account started at age four, with modest regular contributions through childhood, reaches adulthood with a financial head start that takes most people a decade of working life to build on their own. The earlier you start, the more the math works in your child's favor.

A custodial investment account, structured as a UGMA (Uniform Gift to Minors Act) or UTMA (Uniform Transfers to Minors Act) account, lets a parent or guardian open and manage an investment account on behalf of a minor child. The account is opened in the child's name with the parent as custodian. The parent controls the account until the child reaches the age of majority, which is 18 in most states, at which point the assets transfer to the child outright.

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These are not 529 college savings plans. Money in a custodial account can be used for anything, not just education. That flexibility is a feature for families who want to give their children a financial foundation beyond tuition, whether for a first car, a home down payment, seed capital for a business, or simply a head start on their own investing.

Stash's $12 per month Stash+ plan includes custodial investment accounts for up to two children, alongside the adult brokerage account, Roth or traditional IRA, Smart Portfolio, and Stock-Back debit card included in the base plan. For a parent who already uses Stash for their own investing, adding custodial accounts for two children costs no additional fee beyond the plan upgrade from $3 to $12 per month.

Children's accounts on Stash access the same fractional share investing available to adult accounts, meaning you can start with as little as $0.01 per investment and build a diversified portfolio of stocks and ETFs without needing a large lump sum to get started. Recurring automatic contributions work the same way as adult accounts, so you can set a fixed monthly transfer for each child and let it run without ongoing management.

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The compounding math for a child's account is more dramatic than for an adult's, simply because the time horizon is longer. Starting an account for a four-year-old with $500 and contributing $50 per month until age 18, at an assumed 7% average annual return, results in approximately $16,500 at the point when the child takes ownership. That same contribution amount started at birth would produce roughly $23,000 by age 18. Neither of those numbers will cover four years of college on their own, but both give a young adult a meaningful financial foundation that most of their peers won't have.

More importantly, the habit of seeing money grow from a young age shapes how children think about money long before they're managing it themselves. Families that talk about investing with their kids, showing them the account balance, explaining what the companies in their portfolio do, consistently raise children who manage money more confidently as adults.

Custodial accounts are subject to what the IRS calls the "kiddie tax," which applies to unearned income, including investment gains, for children under age 19 (or under 24 if a full-time student). The IRS outlines these rules in Publication 929 . For 2025, the first $1,350 of a child's unearned income is tax-free, the next $1,350 is taxed at the child's rate, and amounts above $2,700 are taxed at the parent's rate. For families making modest monthly contributions into a custodial account, the annual gains are unlikely to exceed these thresholds for many years, making the tax impact minimal in practice.

Unlike 529 plans, there is no penalty for using custodial account funds for non-education expenses. The tradeoff is that assets in a custodial account count more heavily against financial aid eligibility than assets in a parent's name, at 20% of the asset value versus 5.64% for parental assets under federal financial aid formulas. If maximizing financial aid eligibility is a priority, a 529 plan held in the parent's name is typically the more favorable structure. Many families run both, using a 529 for education-specific savings and a custodial account to build broader wealth for their children.

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There is no minimum complexity required to open a custodial account and make a first contribution. You do not need a financial plan or an investment thesis. You need a decision to start and a recurring contribution amount that fits your budget. Even $25 per month per child, maintained consistently through childhood, produces a meaningful balance by the time a teenager turns 18.

Stash+ at $12 per month includes custodial investment accounts for two children alongside all of Stash's adult investing features , making it one of the more cost-effective ways to invest for your kids without needing to open and manage separate accounts at a different platform.

The most expensive thing you can give your children financially is a late start. The second most expensive is waiting until you fully understand investing before you begin.

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