Are you a young Canadian looking to start investing in the stock market? Or maybe you’re a concerned parent wondering when your child can begin investing. Whatever the case, understanding the age requirements for investing in stocks is crucial.
Investing in stocks can be a great way to build wealth over time, but it’s important to know the rules and regulations surrounding it. In Canada, specific age requirements must be met before an individual can legally invest in stocks.
In this article, we’ll look closer at the age requirements for investing in stocks in Canada and provide some tips on getting started with investing.
What age can I invest in stocks myself in Canada?
In Canada, the age to invest in stocks varies depending on the province or territory where you reside.
In most provinces and territories, the minimum age to open a brokerage account and invest in stocks is 18. However, in some provinces, such as British Columbia, Alberta, Saskatchewan, and Manitoba, the minimum age is 19.
The caveat is that you can invest in your TFSA if you are 18 or older and have a valid Social Insurance Number (SIN). A TFSA is a registered account allowing you to invest in various investment products, depending on what kind of TFSA you opened, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more.
Minors below the minimum age requirement may still invest in stocks but must have a parent or legal guardian open a custodial account. A custodial account is an account in which an adult manages assets on behalf of a minor until they reach the age of majority.
What investment options are available to minors in Canada?
Minors in Canada have a variety of investment options available to them, including:
- Registered Education Savings Plan (RESP): An RESP is a tax-sheltered investment account designed to help parents save for their children’s post-secondary education. Contributions to an RESP are not tax-deductible, but investment growth and government grants are tax-free.
- Custodial account: A custodial account is an investment account in which an adult manages assets on behalf of a minor until they reach the age of majority. The adult serves as the account’s custodian, but the account’s assets belong to the minor.
- High-Interest Savings Account (HISA): A HISA is a type of savings account paying a higher interest rate than a traditional one. Some banks and credit unions offer HISAs specifically designed for minors.
- GICs: Guaranteed Investment Certificates (GICs) are low-risk investments that pay a fixed interest rate over a set period. Some financial institutions offer GICs specifically designed for minors.
- Stocks and mutual funds: Minors can invest in stocks and mutual funds through a custodial account or an RESP. However, it’s important to note that investing in stocks and mutual funds involves risks and may not be suitable for all minors.
There are several ways to make money as a teen in Canada.
How to invest in Stocks as a minor in Canada
Using a bank account, you can only put your money in HISA or GICs without parental approval because they are risk-free; unfortunately, these offer a low return.
The only way to invest in stocks and mutual funds if you are under the age of majority in your province is to ask your parents.
Minors in Canada can invest in stocks through a custodial account or a Registered Education Savings Plan (RESP).
- Custodial Account: A custodial account is an investment account in which an adult manages assets on behalf of a minor until they reach the age of majority. The adult serves as the account’s custodian, but the account’s assets belong to the minor. To open a custodial account, the minor’s parent or legal guardian must contact a brokerage firm or financial institution and provide the necessary documentation, such as the minor’s birth certificate and the custodial account agreement.
- Registered Education Savings Plan (RESP): An RESP is a tax-sheltered investment account designed to help parents save for their children’s post-secondary education. Contributions to an RESP are not tax-deductible, but investment growth and government grants are tax-free. To open an RESP, the minor’s parent or legal guardian must contact a financial institution and provide the necessary documentation, such as the minor’s birth certificate and Social Insurance Number (SIN).
Is an RESP a good investment?
An RESP (Registered Education Savings Plan) is a tax-sheltered investment account designed to help parents save for their children’s post-secondary education. Whether an RESP is a good investment depends on several factors, including financial goals, risk tolerance, and time horizon.
Here are some potential benefits of investing in an RESP:
- Tax benefits: Contributions to an RESP are not tax-deductible, but investment growth and government grants are tax-free. This means that your money grows tax-free inside the account, which can result in significant savings over the long term.
- Government grants: The Canadian government provides two types of grants for RESP contributions: the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB). You may be eligible for up to $7,200 in CESG and $2,000 in CLB, depending on your income and contribution.
- Flexibility: An RESP allows you to save for a child’s post-secondary education without requiring them to decide on a specific institution or program immediately. RESP funds can be used for various education-related expenses, including tuition, books, and housing.
However, it’s important to note that there are some potential downsides to investing in an RESP:
- Penalties for non-education use: If you withdraw funds from an RESP for non-education purposes, you may be subject to penalties and taxes on the investment gains.
- Limited investment options: RESP accounts may have limited investment options compared to other investment accounts.
- Market risks: As with any investment, RESP investments are subject to market risks, and there is no guarantee of returns.
Overall, an RESP can be a good investment if you save for a child’s post-secondary education and take advantage of the available tax benefits and government grants.
At what age can you start investing in a TFSA?
The minimum age to open a Tax-Free Savings Account (TFSA) in Canada is 18. This means you can start investing in a TFSA when you turn 18. However, you must have a valid Social Insurance Number (SIN) and be a resident of Canada to be eligible for a TFSA. You may consider opening a TFSA with a Canadian Robo-Advisor to get your money working for you in a low-risk way.
It’s important to note that contributions to a TFSA are subject to an annual limit, which the Canadian government sets.
Is it too early to invest in an RRSP?
Making RRSP (Registered Retirement Savings Plan) contributions as a teenager in Canada can be a smart financial move toward early retirement. Still, it depends on your individual circumstances and financial goals.
Here are some potential benefits of making RRSP contributions as a teenager:
- Tax benefits: RRSP contributions are tax-deductible, which means you can reduce your taxable income and potentially lower your tax bill. As a teenager, you may not have a high income yet, so making RRSP contributions could result in significant tax savings.
- Compound interest: One of the biggest advantages of saving for retirement early is the power of compound interest. By contributing to an RRSP as a teenager, you have more time for your investments to grow tax-free, potentially resulting in a larger retirement fund.
- Retirement planning: Starting to save for retirement as a teenager can help you establish good financial habits and a long-term financial perspective. It can also give you a head start on building a retirement nest egg.
However, it’s important to consider your current financial situation and goals before making RRSP contributions. If you have high-interest debt or other financial obligations, focusing on paying off debt may be more beneficial before making RRSP contributions. It’s also important to consider your short-term financial goals, such as saving for education or a down payment on a home.
Consult a financial advisor to determine the most appropriate investment strategy for your goals and risk tolerance. They can help you determine if making RRSP contributions as a teenager is the right move for you.