Posted at 5:00 a.m.
Free to invest… under parental supervision
When you’re a minor, you can’t exercise all your rights, says Charles Rioux-Rousseau, senior financial planning analyst at RGP Wealth Management.
“The money is managed by a parent and when the child turns 18, the account is transferred directly to him. The parent does not hold the money. He is the guardian and manages the money on behalf of the child. »
When the child has $25,000 or more, the money must be managed by a family council or the Curateur public. Starting in November 2022, the amount will be increased to $40,000.
“Despite everything, taking your first steps in investing, investing money, managing your budget, rather than spending it all, is interesting and stimulating,” says Charles Rioux-Rousseau during the telephone interview.
No unlimited access to the entire planet
The grocery clerk addicted to video games dreams of cryptocurrency to buy a house in the metaverse? The TikTok-loving cafe waitress wants to invest in the shares of her favorite hobby company? Impossible !
By law, young people under the age of 18 do not have access to any kind of placements. They must comply with the rule of presumed sound investments.
“It’s not just guaranteed investments,” explains the planner.
PHOTO EDOUARD PLANTE-FRÉCHETTE, LA PRESSE ARCHIVES
Charles Rioux-Rousseau, Senior Financial Planning Analyst at RGP Wealth Management
But it can’t be risky investments we make with the brother-in-law in an obscure company. Neither cryptocurrency nor NFTs that could interest young people.
Charles Rioux-Rousseau, Senior Financial Planning Analyst at RGP Wealth Management
NFTs (non-fungible tokenor non-fungible tokens) are those trendy digital certificates that attest to the authenticity of a virtual item like artwork, tweets, and memes.
If we buy shares, they must be of a Canadian company listed on the stock exchange for more than three years, specifies Charles Rioux-Rousseau. If they are bonds, they must be guaranteed by a Canadian government, municipality or school board or a public utility in Canada.
If you opt for a mutual fund, 60% of its value must be in presumed safe investments. The fund could be allocated as follows: 30% bonds, 30% Canadian equities and the remaining 40% could be foreign equities.
Same rule for exchange-traded funds (ETFs): 60% must be in presumed safe investments and 40% in foreign securities.
TFSA not offered before majority
Young people under the age of 18 do not have access to the TFSA, but can have access to RRSPs. By filing their tax returns, they accumulate RRSP rights each year.
“Of course, 18% of $5,000 is not a lot, raises the planner. Since young people do not pay taxes, it is better to save the contribution room for later. »
The gold mine: the RESP
Contributing to a Registered Education Savings Plan (RESP) is a good option, however. If the parents have already opened an account, the child can open a second one where he will be both the account holder and the beneficiary. “Once again, it is the parent who opens the account in his capacity as tutor on behalf of the child,” underlines Charles Rioux-Rousseau.
If the parents have never contributed the maximum, there will therefore remain an interesting space to obtain government subsidies. Who can boast of having yields of 30% currently? It’s a real gold mine when you’re 14 years old.
The maximum that can be invested in the accounts per beneficiary is $36,000 to obtain 20% subsidies from the Canadian government and 10% subsidies from the Quebec government. Amounts paid after $36,000 up to a maximum of $50,000 do not receive a subsidy.
“There are rules to follow for those who have never opened an RESP,” points out Charles Rioux-Rousseau. If you are 14 years old and your parents have never contributed, you can contribute $5,000 to get the subsidies and then make a catch-up of $5,000 for the following years up to 17 years old. »
The capital invested will not be taxable upon withdrawal. Grants and investment income will be taxed in the name of the child.
Non-registered investments prohibited for parents
In non-registered accounts, earnings will be taxed annually in the child’s name. “It doesn’t have to be an account in which the child and the parent put money. It would be too easy to do income splitting with our children, argues the planner. It must be money that the child has earned, with supporting evidence. »
Whether in an RESP or in a non-registered account, investments must be presumed to be safe.
Invest to have an impact and get rich
Solenne Daigle, president of the Responsible Investment Club of Quebec, where young academics and professionals meet to discuss investments, observes that young investors want to have an impact on society by taking advantage of current issues.
In general, they want to have a moral axis in the way of investing while fitting into the technological transition, she explains.
PHOTO MARCO CAMPANOZZI, THE PRESS
Solenne Daigle, President of the Responsible Investment Club of Quebec
“Young people try to follow the trends. We are in a period of transformation, whether towards a low-carbon economy, technological support due to the pandemic or a food security crisis due in particular to the war in Ukraine. Through these major issues, we wonder how we can take advantage of them and where we can invest. »
What does investing for the long term mean?
When you invest your money, it is generally for the long term, explains Charles Rioux-Rousseau. But what does “long term” mean in the mind of a 14-year-old? The prom?
Investing part of your employment income in order to buy a car at 18 may seem like a distant horizon when you are only 14 years old. However, it is not the same “long term” as for the young adult of 25 who invests his money for his retirement, specifies the planner. “So we could qualify the projects of these young people as medium term. »
In summary, we do not invest the money we want to withdraw in two months.
What projects can they dream of?
14-year-olds interviewed by The Press said they saved 75% of their pay. By earning $120 net per week, the employee therefore manages to save $90 per week. Let’s see if this savings is enough to carry out their plans.
For returns, we took the standards of the Quebec Institute for Financial Planning (IQPF), ie 3.3% for a portfolio composed of 50% equities, 45% fixed income and 5% cash.
Buying a used car at 18 for $8,000
- The project is possible by placing $36.46 per week for four years.
- By investing $90 per week, in four years the investments reach $18,428.92.
Traveling Asia at 20 with $10,000
- The project is possible by placing $30 per week for six years.
- By investing $90 per week, in six years the investments reach $28,580.69.
Buy a house at 30 with a down payment of $30,000
- The project is possible by placing $28 per week for 16 years.
- By investing $90 per week, in 16 years the investments reach $90,516.
Investment sectors that ignite young people
In the low-carbon transition, there are many opportunities, including those of solar, wind, hydroelectricity or the Internet of Things used to regulate and support the consumption of this energy, raises Solenne Daigle. Companies that are active in these areas as well as those that invest in water, veganism or contribute to vertical farming on a large or small scale will be likely to turn on younger investors, according to what the president observes within of its Responsible Investment Club of Quebec.
How do I find placements?
“Even if mutual funds are considered the old method, they are easy to understand for a beginner, says Solenne Daigle. We understand that there is someone behind the fund who chooses the assets, who takes care of making it perform. Rather than having to analyze a company on your own, you look at the general criteria of what does or does not fit into the fund. »
I suggest funds, because it’s a great introduction to the stock market in the context of a pandemic and a world in unstable transition.
Solenne Daigle, President of the Responsible Investment Club of Quebec
“If we have no economic notions, we do not understand why a company that makes a lot of money does not perform on the stock market or vice versa,” she gives as an example. Solenne Daigle suggests training on the stock market on the CIRANO website (Bourstad stock market simulations). It is possible to register for free.
To find a mutual fund or an exchange-traded fund, you have to go through either a financial institution or an online platform.
Are parents losing money?
In Quebec, the dependent credit does not apply to children in school.
At the federal level, there is the amount for dependents, but it is only available if the parent does not have a spouse and the child is under 18 years old.
In 2021, the eligible dependent credit was $1,729, a non-refundable credit. “A single parent with a dependent child who would have earned $3,808 in 2021 would benefit from a non-refundable tax credit of $1,253, a reduction of $476 compared to the full amount,” explains Charles Rioux-Rousseau.