How to teach your children about investing - with a TFSA

Your child might be at least 18 and old enough to open a Tax-Free Savings Account (TFSA), but may not have the resources to make a contribution.

Here’s an idea that gets your child started in investing and in learning about investing.

Teaching the basics of investing

You give your daughter or son $2,000 or more to deposit into a TFSA, on the condition that he or she learn the basics of investing. The investment lesson could come from you, from us if you want, or perhaps online.

A good place to start is a simple description of stocks and bonds. What’s a bond and why do governments and corporations issue bonds? What’s a stock and why can a company’s share value go up or down? This can lead to an explanation of cash, fixed-income and equity investments and the risk and potential reward of each asset class.

Your child’s younger age can present an ideal teaching opportunity of how investment objectives and time horizon influence the choice of investment.

Types of income

Say your son is 18 and plans to use the TFSA to help pay for university. It’s easy for him to understand why his TFSA should focus on cash equivalents. If he’s putting money aside for after graduation, the focus may be on fixed income. Or maybe your gift will meet a long-term objective like retirement, with most of the TFSA invested in equities.

Just one note of caution. Your gift becomes your child’s money in their TFSA to save – or spend- as they wish.