How To Invest As A Teenager In Canada
By Jason Heath on November 29, 2021
Birthday money burning a hole? Read our “investing for teens” guide for where to invest, how to buy stocks, what you need from your parents, and more.
If youre starting to save the money youve received from birthdays, holidays and part-time jobs, you may be wondering how you can invest your savings. An important life lesson for any young person is the habit of savingso investing for some teenagers can be the next step.
In Canada, many provinces have upped their personal finance curriculum content for elementary and high school since I was a kid. Social media also has a lot more information about money and investing, as well as trending content about spending money as well.
What Age Can You Start Investing In A Tfsa
A minor cannot contribute to a tax-free savings account . Taxpayers do not start to accumulate room in a TFSA until the year they turn 18. That said, many Canadians, and that includes parents or grandparents, have the TFSA room, given the cumulative TFSA limit is up to $81,500 as of January 2022.
A parent or grandparent could contribute your savings to their own TFSA and have it notionally belong to you. They could consider opening a separate TFSA to distinguish the funds from their own or buying different investments within their primary TFSA. By opening a separate TFSA, they could even name a minor as the beneficiary in the event of their death.
Open A Custodial Traditional Ira
Anyone who has earned income can open a Traditional IRA. This means your teenager can fund one, even if they only have a summer job or a short part-time job during the year.
Teens can invest up to $5,500 per year in a Traditional IRA, and the money can be placed into a self-directed brokerage account. This will allow them to control their money and start investing it.
Traditional IRAs have the benefit of allowing teens to enjoy a tax deduction on the money they contribute to their account. For most teens, this isnt much of an issue, as they probably wont be making so much money they need to worry about meeting an income threshold. But if they earn $6,500 or more in 2018, then a Traditional IRA makes a lot of sense.
One advantage that your teen will enjoy when they open a Traditional IRA is that they provide tax-deferred accumulation of their investment earnings. This can offer lifelong benefits as their earnings compound, which is why so many teenagers can really benefit from opening this type of IRA. To make sure that you choose the right one for your teenager, you will want to check with a professional.
Related: Best Custodial Accounts
Read Also: Financial Analysis For Commercial Investment Real Estate
What Is A Custodial Account & How Does One Work
A custodial account acts as a type of financial account an adult maintains for another person, often a minor. The two basic types of custodial accounts are the Uniform Transfer to Minors Act accounts and Uniform Gifts to Minors Act accounts.
You can set up Uniform Transfer to Minors Act accounts with a large variety of various types of investment accounts.
The money in these accounts is controlled by a custodian, typically a parent, and the teen or child doesnt have access to the funds until he or she reaches that states age of majority. For some states that age is 18 and for others it is 21.
Uniform Gifts to Minors Act accounts allow assets to be controlled in a custodians name to benefit a minor without the need for setting up a special trust fund.
UGMA accounts are held in the minors name , but the listed trustee can complete transactions on the minors behalf until they are of legal age to take over the account and its investments as a young adult.
You can use money from either type of account for any purpose and, subject to certain investment income limits, only falls subject to taxation at the childs rate. This may also vary by age and student status.
For example, lets say you are under age 19 or younger than 24 and a full-time student. In this situation, your first $1,100 of investment income is tax-free. Your next $1,100 would be taxed at 10%.
Anything above that would be taxed at your parents marginal tax rate. The IRS refers to this as the Kiddie Tax.
Ask Parents For Tasks
Your parents probably have a lot of stuff they would like to have done around the house. They just might not have the time to do it.
Ask your parents if they have a list of jobs they would be willing to pay you to do. Perhaps theyll hire you to deep clean the basement or garage.
Or maybe they need help removing clutter in their home office.
They might want you to do a spring cleaning project such as washing windows or dusting.
Have them make a list of tasks they need to be done around the house and what theyll pay for each completed job.
Recommended Reading: Invest In Stocks With No Money
Investing In A Business
If the teenager has any money left over after meeting the above goals and spending on any wants or needs, one interesting approach is giving him or her the opportunity to invest directly in a business. But be careful here. Such direct investments are a way for people to take advantage of young, impressionable teenagers.
Over the years, Ive heard many cases where parents borrow money from their children to start a business destined to fail. You wouldnt think teenagers would have a hard time saying no to their parents, given the rebellious nature of adolescence. But when a parent appears to be in need, even the most angsty teens want to help their parents.
Investing in a business directly is always a dangerous option. Its true that failure can teach a strong lesson. But the cost can also be high, especially if the business is owned by a parent or someone else the teenager is close to.
So the best option here might be allowing the teenager to invest directly in a business opportunity of their own. Not every teenager will want to run their own business long-term. But giving them the opportunity to try it can he helpful.
In this way, teenagers can leverage their own expertise to make more money. Then, they can continue investing some back into their growing business while putting the rest into the goals named above.
What kinds of investments should teenagers make with the money they earn from jobs while in school?
Of The Best Ways To Actually Make Money As A Teen
There are two things that every mom has said to their kids growing up.
Because I said so.
No, theres food at the house.
-Every Mom Ever
See our childhoods arent too different after all. I remember being around 9 years old when I asked my mom to buy me a Snickers bar at Rite Aid. She looked at me and said, If you want to buy snacks, do so with your own money. Unfair, seeing how I was a child with no income of my own. So I asked the reasonable follow-up question, How do I make money? she said plainly, You have to sell something. I then responded, what should I sell?
It was a hot summer day and she looked around the store. She pointed at a 24 pack of water and said, It cost five bucks to buy a 24 pack of water. Buy a 24 pack, bring it to the local park, and sell each water for $1. If you sell all of them, you make 19 bucks. You can buy all the Snicker bars you want then.
I doubt she thought I was going to follow through with the idea, but even back then I understood the importance of money. So, after doing a little bit of research, I realize all I would need is a cooler on wheels and a bag of ice. Within a week, I took out a small loan from my mom to buy all the needed materials, and I started going to my local park screaming, Ice-cold water, ice-cold soda, one dollar.
Read Also: How To Pick An Investment Advisor
Deliver Food For Door Dash
Doordash is an app where you can order food directly to your home from your phone. They partner with a lot of restaurants and fast food companies in certain areas and pay delivery workers to pick up the food and deliver the food.
Doordash requires you to be 18 years old to work for the company. They also require you to have your own form of transportation . You can choose your own hours and this is a steady stream of work as people are always ordering food to their house.
What Types Of Investments Are There
Here are some common kinds of investments to think about, from simple savings to complex:
High-yield savings accounts. Some savings accounts, known as high-yield accounts, pay a higher than usual interest rate. They typically have restrictions on the number of times you can access your money to justify the higher interest.
Money market accounts. These accounts are like hybrid checking and savings accounts and they earn more interest than the typical savings account. The downside is that they sometimes have expensive fees that can eat into your savings.
IRA.Individual Retirement Accounts help give you tax advantages with some restrictions. Traditional IRAs let you invest without being taxed upfront but youll pay tax when you withdraw in the future. Roth IRAs let you invest after paying taxes, which means you wont pay taxes accessing your money later on.
CDs. CDs are offered by banks and pay more interest than a typical savings account. Thats because you agree to leave the money there, untouched, for a certain period of time. Typically the longer you agree to leave your money, the higher the interest rate.
Stocks. When you own a stock, you actually own a fraction of the company. Companies sell stocks in order to raise money to operate and grow their business. While risky, stocks have historically outperformed other investment vehicles.
Index/Mutual funds & ETFs. These types of investment funds let you buy multiple stocks at the same time.
You May Like: Real Estate Mortgage Investment Conduit
Run A Farmers Market Stand
Many local farmers market managers charge money when adults set up a stand. Fortunately, some will allow kids to do so for free.
Farmers markets sell a wide variety of items ranging from fruits and vegetables to baked goods and crafts. Think about all the different things you could sell.
There was a group of teens at our local farmers market that used to make brick oven pizzas and bread at the local farmers market.
They made a decent amount of money doing this.
Its important to check your states laws about farmers market foods before selling baked goods or specialty foods.
Make Money As A Teen Working At An Amazon Warehouse
Amazon has fulfillment centers all over the US. While working in an Amazon warehouse youll be responsible for fulfilling orders that people place through the company. This is another job that you can turn from a part-time job into a full-time job during times like the summer. You have to be okay with being on your feet and being able to lift objects of up to 30 lbs.
Not only will this give you great experience with operations, but its also a great resume builder. Everyone knows Amazon and having that on a resume can be leveraged to get different positions.
Don’t Miss: List Of Family Offices Investing In Real Estate
Once Your Teenagers Get A Grip On Credit Introduce Them To The Flip Side: Investing After All That’s When They Extend The Credit And Collect The Interest
Since your teens may have too much money collecting no interest in a checking account, the best way to start is with a money market account on which they can write a few checks.
From there, introduce them to simple, set-term investments like savings bonds and certificates of deposit. Though returns from these will be meager, they serve an important lesson and will build their confidence about investing.
From there, introduce them to the stock market, but not as a prelude to picking stocks. Instead, advise them to get into some diversified mutual funds or a solid index fund.
Some of the stock investing games available on the Internet are a fun and educational way to introduce a teenager to stocks.
Once you get your child to understand the ups and downs of the stock market, you’ve probably accomplished all that you can reasonably hope for. Then, if he or she wants to put some money into individual stocks, set up a trust account for him or her with a discount broker.
Minors cannot legally trade on their own, but you can do it for them. Make sure you don’t give up that password, though. This will ensure that the child consults with you before any trade is made.
Find Your Investing Identity
Another important part of the process is to discover your investing identity. Are you a risk-taker? Then growth investing might be right up your alley. Do you like getting paid ? Consider income stocks. Do you love a great deal? You might be a value investor at heart.
As you learn more about investing, you’ll discover what interests you the most, which is the key to staying invested over the long term so that you can benefit from the wonders of compound earnings.
As you discover more about how to invest money as a teenager, you’ll likely go down one of two paths: active or passive investing.
If you find that active investing isn’t your thing, don’t give up. Instead, take a little more time to investigate passive options such as mutual funds and index funds, which track stock market indexes.
There’s no shame in consistently putting some money into one of the top index funds and calling it a day. Over the long term, they’ll do a wonderful job of increasing your wealth.
Read Also: Prudential Real Estate Investment Analyst Interview
Invest In Individual Stocks
Investing in individual stocks can represent the greatest chance of capital appreciation because they can rapidly outpace a broader basket of stocks you hold in multiple companies.
At the same time, this can create a significant amount of risk from lack of diversification, exposing you to the ups and downs on one individual company instead of many.
Growth stocks focus on long-term capital appreciation as opposed to paying dividends to their investors. Depending on your investing objectives, you will need to decide whether you wish to invest for capital appreciation or for income-paying stocks in the form of dividends.
Choosing to invest in dividend-yielding stocks as a teenager can become very lucrative long-term. Dividends represent payments made by companies representing a percentage of their profits given back to investors.
The amount you receive depends on the number of shares you own in the company. In quality companies, dividends often rise each year. If you reinvest your dividends into more shares, you will get more dividends in an advantageous cycle.
To trade individual stocks, have a look at some of the stock apps out there. Pair them with the stock news apps and you can really gain an understanding of the market from a young age.
Consider starting with these stocks for kids as well as reviewing the stock trading risks kids and their parents should understand.
The Strangest Secret By Earl Nightingale
Earl Nightingale was an American businessman and entrepreneur. Back in the nineteen fifties, be toured the country doing a lot of speaking to business groups and the like about how to get ahead in life and in business.
His talks were so popular that he started to get requests for recordings of his talks.
So be decided to cut a record of his talks and press a few thousand copies only in order to hand them out at his talks.
The recordings became so popular that he ended up not only seeking millions of records but also creating the self-help publishing industry almost as we know it today.
Dont worry too much about since of the overly biblical themes. The lessons and principles he teaches are timeless and should strike a real chord with any teenager about to start out on their journey in life.
Read Also: Is Replacing Windows A Good Investment
Create Websites For Local Businesses
All big businesses have a website. Studies show that 3.5 billion people use the internet. However, smaller businesses may not have a website simply because they dont know how to make one. Go to local businesses and show them some examples of other websites within their space and tell them that you can make them a website just like this one. There are more than enough YouTube videos out there that walk you through step-by-step how to make a website from scratch. So dont be intimidated by the process.
Investing For Teens: The Big Ideas
- If youre under 18, youll need your parents help getting started investing. If youre over 18, you can open an investment account on your own .
- As a teenager, you have the ability to leverage a massive advantage called compound returns. If you understand and utilize this concept now, you can become quite rich over your lifetime.
- Many teenagers mistake investing as a way to get rich quick. But good investing is more about earning decent returns over a very long period of time. Thats when the magic of compounding really kicks in.
Read Also: How Much To Invest In Cryptocurrency To Become A Millionaire
