Investing basics for kids

It might seem odd to talk to your kids about investing, but by introducing the topic early, you prepare them for financial decisions they’ll need to make as adults.

What’s investing?

Your child knows what it means to save money. Investing builds on saving.

When you invest, you’re putting your money into an asset, like an investment fund, with the expectation the amount of money will increase. However, with many investments, there’s a risk you may lose money.

Here’s one way to explain the difference between simply saving your money and investing it. If your child saves their money in a jar, the amount of money only grows if the child adds more money to the jar. But if they save their money in a savings account, a basic type of investing, their money will earn interest.

Types of investments

While there are many types of investments, these examples are the most common ones. Your child may even know a little about these from ads or news items.

High-interest savings account

A high-interest savings account is similar to a regular savings account except it typically pays a higher interest rate which is calculated daily and paid monthly or at the time you take the money out.

Registered education savings account (RESP)

An RESP is supported by the federal and some provincial governments. It helps you save money for a child’s education, where the investments inside the investment account grow tax-free.

There is lifetime limit of $50,000 per beneficiary.

Registered retirement savings plan (RRSP)

An RRSP is an investing and retirement savings account registered with the Canada Revenue Agency (CRA) that provides Canadians benefits to save for retirement. You can also borrow from your RRSP for a down payment on your home or to pay for full-time education for you or your spouse.

Tax-free savings account

A TFSA isn’t a typical savings account. It’s versatile, so you can use it to save for a more immediate goal, like saving for a new car or a trip, but you can also use it to save for your retirement. You generally won’t pay tax on any income earned in the account or the money you withdraw.

When to start investing

Many types of investments have a minimum age of eligibility. This is usually the age of majority in your province. I can help you look at different investment options for your child when they’re old enough.

You can prepare your child for investing by sharing your investment plan with them and talking about why you chose specific investments. Show them how much you’ve either earned or lost over the last few years.

Next steps

I’m here to help you talk to your kid about investing basics. Contact me today so we can work together to make a plan.

This information is general in nature, and is intended for informational purposes only. For specific situations you should consult the appropriate legal, accounting or tax advisor.

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