Introduce your teen to investing
December 11th, 2023
When your child reaches the age of majority, they’re able to open a Tax-Free Savings Account (TFSA) and First Home Savings Account (FHSA). So it’s a good idea if you can introduce them to some investment basics.
A helpful guide
To help determine which basics to cover, it’s helpful to know which topics your child should eventually understand as an investor. But this is only a guide – it’s not expected that a teen will know about all of these topics.
Compound interest. Understanding compound interest will encourage your child to save when they’re able to. Their money makes money, and the original and new money makes even more. You could show them an online compound interest calculator.
Stocks and bonds. It’s helpful to know why stocks are typically used to meet longer-term goals, why bonds are used to meet shorter-term goals and how they work together in a portfolio.
Asset allocation. When they start investing, your child should know that their proportion of equities and fixed income is based on their financial goal, their risk tolerance and when they’ll need the money.
Diversification. You can let your child know that different types of stocks and bonds perform differently at any given time, so it’s wise to have a variety of investments.
A great lesson is to talk about the investments in the child’s Registered Education Savings Plan (RESP). You can explain why the focus shifted from equities to fixed income over the years.
You could also tell your child that at age 18 or 19 (depending on your province) they can open a TFSA, then explain the account’s benefits.
You may want to ask your teen if they’ve learned about compound interest in school. If they haven’t, you could explain the concept.
These are only a few ideas. You can come up with your own approaches that suit you and your teen. All you need to do is provide an introduction, so they won’t feel intimidated or overwhelmed when they start to invest.