Yes, you can open an investment account for your child in Canada! In fact, as your children grow through teenage and early adulthood, having an investment account can be one of the most powerful ways to attain wealth. In addition to utilizing the power of compounding, learning and practicing investing early can lay a powerful foundation for their financial prosperity.
Three Advantages of Starting Early When Investing
So, why should teens dive into the world of investing? It’s not just about money; it’s about empowering them to make your money work for themselves. Starting early allows them to embrace the adventure of investing, take calculated risks, and witness their wealth grow into something extraordinary.
Remember, it’s not about becoming a financial expert overnight. It’s about planting the seeds of financial freedom early on, so they can enjoy the rewards later.
Utilize the Power of Compound Interest and gains
Compound interest is a powerful concept which builds upon your child’s age as a strength. Simply put, compound interest is getting interest or gains on interest over time. The more times you invest, the more your money grows. This is hugely beneficial to young children as they have time on their side.
As an example, let’s assume your 15 year daughter invests $1,000 with an average return of 10%. If they continue investing and re-investing the amount until they are 24, their investment amount would have grown to $2,357. On the contrary, if they had started investing at the age of 20, their investment amount would have grown to $1,464 only at the age of 24. It’s still more than their initial investment, but it’s less compared to starting at 15 because they missed out on those extra five years of compound growth.
In simple terms, starting to invest early is like planting a money tree. The earlier you plant it, the more time it has to grow and the bigger it becomes. So, the sooner your children start investing, the more your money can grow!
Higher Growth Potential
This advantage also utilizes your child’s age towards their strength. They can afford to take on longer-term investments when they have more time ahead.
Longer-term investments, such as stocks or funds, have the potential for higher growth. They might bounce up and down in the short term, but they tend to increase in value over the years. Time smoothens the bumps, allowing your money to recover from dips and soar to new heights.
Fostering Financial Literacy for Children
Working with your child to invest is akin to gifting them a treasure chest of lifelong skills. Through this shared experience, they gain insights into managing money and learn the art of making informed financial decisions. Investment principles become life lessons, teaching responsibility, critical thinking, and the importance of setting long-term goals.
Collaborating on investment endeavours provides a unique opportunity to nurture financial literacy. By discussing concepts such as risk, diversification, and the impact of economic factors, you equip your teen with a solid understanding of the banking and investment ecosystem. This shared knowledge strengthens your parent-child bond and prepares them for financial independence.
What Investment Account Can You Open for Your Child
If your child is less than the age of maturity, open an RRSP or an Arrangement in Trust TFSA for them. If they have reached maturity age, encourage them to open an individual TFSA or a brokerage account.
Depending on age and province, there are legislations governing whether you can open an investment account for your child in Canada? For example, TFSA can only be opened after the age of majority, even though the accumulation starts at 18. Thankfully, for us, RRSP doesn’t have a minimum age limit for opening an account. Speak to a licensed financial advisor or planner before you open an investment account for your child. Before you get worried about tying up funds till the age of retirement through an RRSP – consider this fact: Your child can use their RRSP towards a 0% interest for their post-secondary education or their first home purchase.
Key Considerations for Children Starting to Invest
Similar to investing as adults, there are some key things for children and parents to be aware of when children start investing
Educate before starting
Before diving into the investing waters, ensure your child has a solid understanding of basic financial concepts. Equip them with knowledge about savings, budgeting, and the risks and rewards associated with investing. A strong educational foundation will empower them to make informed decisions.
Start Small, Dream Big:
Begin with modest investments. Encourage your child to start small and gradually increase their investment portfolio as they gain confidence and experience. This approach minimizes risks and allows them to learn the ropes without overwhelming pressure.
Keep a Long-term Perspective
Instill the importance of a long-term perspective. Emphasize that investments often fluctuate in the short term, but over time, they have the potential to grow significantly. Teach your child the value of patience and resilience, essential virtues in the world of investing.
Diversify
Introduce the concept of diversification. Encourage your child to spread their investments across different assets or sectors to reduce risk. Diversification acts as a safety net, ensuring that the impact of a downturn in one investment is mitigated by the performance of others.
Assess Risk Tolerance and Identify Age-Appropriate Investments
Assess your child’s risk tolerance. Young investors generally have a longer investment horizon, allowing them to weather market fluctuations. However, align investments with their comfort level. As they gain experience and confidence, they can gradually explore higher-risk opportunities.
Embrace Learning from Mistakes:
Teach your child that mistakes are part of the learning process. If an investment doesn’t go as planned, use it as an opportunity to analyze what happened, learn from the experience, and make more informed decisions in the future.
Conclusion
Investing is a journey filled with learning opportunities and potential rewards. As you open an investment account for your child, you ensure that your child’s foray into investing is guided by wisdom, education, and a commitment to long-term financial growth. Together, you’re laying the groundwork for a future where financial independence and smart decision-making go hand in hand. Bon voyage on this exciting investment adventure!
Ready to embark on this exciting investment adventure with your child? We’d love to hear about your thoughts and experiences. Share your insights, questions, or any additional considerations you find valuable in the comments below. Let’s make this a collaborative space where we can learn and grow together on our financial journey. Your thoughts matter! 🚀 #FinancialAdventureTogether
Leave a Reply