Helping Children Build Their Money Skills Through Hands-on Learning

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By iA Private Wealth, November 25, 2019

Financial literacy is increasingly being recognized as a necessary life skill. After all, fluency in the language of finance can help pave the way to greater economic security, especially when proficiency is learned early on. That’s why core curriculum for children as young as elementary-school age now includes financial education alongside other basics like reading and math. Nevertheless, one of the best places to learn about money continues to be at home. As a parent, you can help your kids build their money skills through hands-on learning and experiences rooted in the real world. Here are some easy-to-implement ideas for raising financially literate children of all ages.

The early years

Truly understanding the value of money is a process that takes time. You can probably start talking to your kids about it sooner than you think. For young children, simple activities and games that help them identify coins and bills are a fun and practical way to introduce money concepts.

Another approach is to encourage them to save with a piggy bank using a clear glass or plastic jar so they can watch their money grow before their eyes. Once you feel they’re ready to advance, you can even have them divide any funds they receive among different savings and spending buckets, emphasizing the importance of earmarking money for long-term goals as well as the unexpected.

The grade-school years

Organizing a yard sale or lemonade stand can help your kids apply their knowledge of dollars and cents, while teaching them how to budget for supplies and manage profits or losses, as the case may be. It’s also a chance for them to experience firsthand how much time and effort it can take to make money.

When your children are old enough, you can open chequing and savings accounts for them to periodically deposit their “earnings” and track their spending. Review their statements with them so they know what the numbers mean and how much cash they have in the bank. This is an ideal way for them to learn about interest, and it lays the foundation for lessons on investing and getting their money to work harder for them.

Teenager to young adult

For tweens and teens old enough to understand the value of a dollar, review the household bills together to help them recognize how their actions – like leaving on the lights or running the tap for too long – have financial consequences. Similarly, explain what you’re doing when you use an ATM card and take time when you’re shopping together to point out money-saving opportunities.

Most teenagers want autonomy and to contribute to their lifestyle needs, so part-time work can be rewarding and help them learn to save better. Once they have a steadier income, give them responsibility over some of their expenses, like a phone or internet bill, and enforce real consequences for late payments if need be. They’ll see how their saving and spending decisions impact their lives, and it reinforces the idea that they should create – and stick to – a budget. As your child gets closer to being financially independent, you can tie in budgeting and living within their means with conversations about using credit responsibly. As these lessons sink in, it will set them up to start their own life as debt-free as possible.

The sooner, the better

With money being such an integral part of daily life, teachable moments can be found everywhere. Take advantage of them when you can. Remember that talking about how to best use money is most effective when it’s an ongoing and routine conversation that evolves as your kids do. That said, most important isn’t when you start, but that you start in the first place. Guiding your children along the path to financial literacy is a gift that costs nothing, provides unlimited potential and offers lessons to last a lifetime.

For more information on how to help your children become more financially savvy and take the first steps in developing a plan for meeting their life and money goals, contact one of our Investment Advisors today.

This article is a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada.

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Financial Literacy Month is Every Month

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By iA Private Wealth, November 9, 2020

November is Financial Literacy Month. You may hear about events and program launches designed to increase the financial capabilities of Canadians. But really, why focus just one month on enhancing financial literacy? Being able to manage your money is a skill everyone needs every day – whether you are young, old or in between.

Typically, people learn the most about money when a big life change happens. It’s usually those big events that turn into teachable moments as people are forced by the situation to learn about their options, choices and decisions to be made.

For those of us with young adult children – university students or those just starting out in their careers – the pandemic has been an incredible teachable moment when it comes to finances, with unexpected impacts to both sides of the balance sheet. Money in and money out. For example, students have had to move to online learning, which in most cases has resulted in modest savings. On the other hand, many have unexpectedly lost their jobs or had their income reduced. Others have moved home – or stayed home instead of going off to university or college. And, of course, many adults with young children have assumed the role of caretaker while working from home versus depending on daycare.

We believe financial literacy month should be every month, but why not take the opportunity this official “Financial Literacy Month” to discuss with your adult children some key financial lessons learned through this pandemic. There are surely many takeaways that will help them better prepare for future disruptions to their financial lives and potentially reduce financial anxiety going forward.

Here are three questions to discuss:

  1. Do you have a budget? Those that do have a budget have likely seen lots of changes. Income may have decreased. Or, working from home may have actually saved them money in a number of ways: daycare costs, transportation, eating out, clothing. Living through this experience of spending less should be a lesson to all Canadians about needs as opposed to wants and how to better control spending.
  2. Do you have an emergency fund or emergency savings? This pandemic has certainly hit home how important it is to have some money put away for a rainy day. Any savings your children have should be channeled into an emergency fund if they haven’t got one.
  3. Do you have the appropriate investments to help you meet your goals? Many people second guessed their risk tolerance levels when the markets crashed in March. Young people who are just starting to experience investing may shy away from the markets due to the volatility. But, as what typically happens in market crashes, there was a rebound. Young investors are in a great position now to take advantage of market growth over the long term.

Bottom line, now is a great time to talk to your children about money. Introduce them to your investment advisor who can walk them through the ins and outs of money management and investing. While money can’t buy happiness, being in control of your finances can certainly lead to less stress and less anxiety about money.

Learn more about how you and your family can get the most out of Financial Literacy Month by contacting one of our Investment Advisors today.

Is a TFSA for You?

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By iA Private Wealth, February 18, 2020

Do you know the difference between a Tax-Free Savings Account (TFSA) and a Registered Retirement Savings Plan (RRSP)? Don’t be embarrassed if you don’t know the answer. More than a quarter of Canadians (27%) are unable to explain the difference between the two accounts1.

While RRSPs and TFSAs share similarities, it’s important to understand how these accounts work and when to use one over another.

Turbocharge your savings

As the name implies, an RRSP is typically reserved for retirement savings (click here for more details). If you are looking for a way to grow your savings tax-free, but would like more flexibility to access your money, consider a TFSA.

Like an RRSP, a TFSA allows you to invest in a wide variety of products, including stocks, bonds, mutual funds, exchange-traded funds and GICs. The right mix of investments will depend on your goals. A TFSA can be a great way to save for shorter-term goals, such as a home reno, a new car or building your “rainy day” fund. Before deciding on which investments to hold in a TFSA, consider your time horizon and savings goal, among other factors.

Saving for retirement

If you’re in your peak earning years, an RRSP may be a better long-term retirement vehicle compared to a TFSA. You can deduct RRSP contributions from your income to lower your tax bill, something you can’t do with a TFSA. An RRSP also helps you save by deferring taxes into the future to when you’re retired, at which point you’ll likely be in a lower tax bracket.

Although RRSPs offer a good way to save for retirement, TFSAs can play a role, too. A TFSA can provide a tax-free way to supplement your income in retirement, which can be useful if you’ve reached your RRSP contribution limit or have a reliable defined benefit pension plan through your employer.

Key features of TFSAs

  • Can be used to fund any goal.
  • For the 2020 tax year, the contribution limit is $6,000; the total cumulative contribution room is $69,500 for those who have never contributed and have been eligible for the TFSA since its introduction in 2009.
  • Contributions are not tax-deductible.
  • Investments benefit from tax-free growth, with no tax on withdrawals.

This year, resolve to save

TFSAs and RRSPs are both attractive for savers and offer significant benefits in helping you reach your financial goals. If you’re still unsure about the best approach for your situation and want to learn more about how to optimize your savings strategy in 2020, contact one of our Investment Advisors today.

1https://www.bnnbloomberg.ca/1-in-4-canadians-don-t-know-the-difference-between-a-tfsa-and-an-rrsp-survey-1.1380298

How RRSPs Turbocharge Your Retirement Savings

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By iA Private Wealth, February 12, 2020

To get the most out of your RRSP, it’s important to understand how it works. An RRSP on its own doesn’t constitute a retirement plan. Think of an RRSP as a special type of savings account that offers tax advantages to help you save for retirement.

Any money you put into an RRSP reduces your taxable income for that year. This is why many Canadians who contribute to their RRSP look forward to receiving a tax refund in the spring. The tax you would have paid on that income gets deferred until you retire. RRSPs are particularly useful when you’re in your peak earning years and anticipate being in a higher tax bracket today than when you’re retired and no longer working.

While you may see the immediate refund on your tax bill, that’s not the only tax benefit an RRSP offers. Your RRSP also provides a tax-free way to grow your savings until you need to withdraw the money and convert it to a Registered Retirement Income Fund (RRIF) by age 71. As mentioned earlier, your RRSP is simply an account; it’s how you decide to invest within that account that matters. RRSPs can hold a variety of investment vehicles, including stocks, bonds, mutual funds, exchange-traded funds and GICs. How you invest will depend on your goals and risk tolerance. Any investments you hold in your RRSP can grow and take advantage of the potential for tax-free compounding.

Maintaining a well-diversified portfolio can help you mitigate risk and volatility, and ultimately help you achieve your retirement goals. The mix of investments that make the most sense for you will depend on a variety of factors, such as your ability to save, your risk tolerance and your goals. Depending on those factors, two people of similar ages and incomes could have very different portfolios. An Investment Advisor can help you decide on the right asset mix and develop strategies to help you save for retirement and your other goals.

Key features of RRSPs

  • Generally used for retirement savings.
  • Annual contribution limit of 18% of your previous year’s income to a maximum of $26,500 for the 2019 tax year, minus applicable pension adjustments, plus any unused contribution room from previous years.
  • Contributions are deductible from income.
  • Investments grow tax-deferred (tax is paid when the funds are withdrawn).

RRSPs work well when they’re used for their intended purpose – retirement. With a few notable exceptions, making early withdrawals from your RRSP can result in a hefty tax bill. If you need to save for shorter-term priorities like a kitchen renovation or a new car, consider alternative savings vehicles that don’t impact your retirement nest egg, such as a Tax-Free Savings Account (TFSA).

Typically, one in four Canadians contributes to their RRSP each year, making a median contribution of $3,030.1 Even small amounts can help. Setting up a regular contribution and investment plan will take the stress off the tax deadline and set you on the path to a comfortable retirement. To find out how you can optimize your retirement savings strategy, speak with one of our Investment Advisors today.

1https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1110004401