A good place to start is a simple explanation of stocks and bonds.
Are you thinking of teaching your child about investing? If your child is 18 years old or older, one way to do it is to help them open a Tax-Free Savings Account (TFSA). Give them $2,000, $4,000 or more to deposit into the TFSA, on the condition that they learn the basics of investing. The investment lesson could come from you, from an advisor, or perhaps online.
A good place to start is a simple explanation 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 a lesson in cash, fixed-income and equity investments, and the risk and potential reward of each asset class.
Your child’s young age is an excellent opportunity for you to teach how investment objective and time horizon influence the choice of investment. 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. On the other hand, 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.
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