How to invest as a teenager in Canada

In Canada, many provinces have upped their personal finance curriculum content for elementary and high school since I was a kid. Social media also has a lot more information about money and investing, as well as trending content about spending money as well. One word of caution: There may be good non-professional advice out there on social media, but some of it is downright bad. Get qualified advice before making any decisions, and you could even take a free investing or personal finance course.

How to start saving as a teen (or younger, or older for that matter)

A minor —under the age of 18 or 19, depending on the province or territory—will generally need a parent or guardian to be listed on an account as well. A parent or grandparent can open a bank account for a child—even a newborn. These accounts may come with features like a bonus for opening the account or no monthly fees. The young person can have a debit card that they use to access their account online or to buy things on their own. 

How to invest as a teenager

Can you invest if you’re in your teens? Yes, if you are the age of majority in your province. The same age of majority rules apply for a brokerage account. A minor cannot open an account to buy stocks, bonds, mutual funds or exchange-traded funds (ETFs) unless a parent or grandparent opens an informal or formal trust account. 

An informal trust, often referred to as an ITF (in trust for) account, is relatively straightforward. The account is managed by the parent because a minor cannot buy or sell securities until they are of age. 

A formal trust, however, is established with a lawyer who drafts a trust deed that outlines the terms of the trust. This is typically done for larger amounts of money given the legal and accounting fees involved up front and annually. 

Informal trust accounts at brokerages may be subject to new rules that came into effect on Dec. 31, 2023. Previously, most informal trusts did not have to file T3 trust tax returns. But starting in 2023, trusts with assets with a fair market value that exceeds $50,000 during the year are required to file trust tax returns. (Read more about tax filing rules for informal trusts.)

Most informal trusts will not be anywhere close to this value. But some ITF accounts could be impacted.

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Your money? Your (grand)parents’ money? It makes a difference

If a trust account is funded from your savings, government child benefits, birthday gifts and other sources of your own, the resulting income is taxable to you. Most teenagers (age of majority or younger) have incomes that are well below the tax-free basic personal amount threshold, which ranges from $8,481 to $21,885 for 2024, depending on the province or territory of residence. Income below this level is not subject to tax.

If a trust account is funded by a parent or grandparent, the income attribution rules may apply such that income is taxable back to the parent or grandparent. To be clear, income in this context is considered interest and dividends. Capital gains, however, are taxable to the minor—though likely no tax would be payable, assuming their income is below the above-mentioned basic personal amount. 

Is an RESP a good investment?

Your savings, even if they are from your own sources, can be added to your registered education savings plan (RESP) account. Especially if a parent is not maxing out their contributions, doing so will be more beneficial than saving in an informal trust account. RESP contributions of up to $2,500 per year receive a 20% Canada Education Savings Grant (CESG) from the government. Contributors can even catch up with an additional $2,500 of missed contributions from previous years to get an additional 20% grant. Low-income families may qualify for a Canada Learning Bond (CLB), and some provinces provide additional benefits to eligible beneficiaries.

What age can you start investing in a TFSA?

A minor cannot contribute to a tax-free savings account (TFSA). Taxpayers do not start to accumulate room in a TFSA until the year they turn 18. That said, many Canadians, and that includes parents or grandparents, have the TFSA room, given the cumulative TFSA limit is up to $95,000 as of January 2024. 

A parent or grandparent could contribute your savings to their own TFSA and have it notionally belong to you. They could consider opening a separate TFSA to distinguish the funds from their own or buying different investments within their primary TFSA. By opening a separate TFSA, they could even name a minor as the beneficiary in the event of their death. There may be a risk in this scenario if that parent or grandparent got divorced or became disabled.

Is it too early to invest in an RRSP?

There is no age minimum requirement for opening a registered retirement savings plan (RRSP) account, but a contributor may need RRSP room. I say “may” because a taxpayer can over-contribute by up to $2,000 to an RRSP without penalty. So, you could contribute up to this limit to an RRSP for a minor. As you begin to work, as long as you file a tax return, you will start to accumulate RRSP room (18% of your earned income each year). 

It’s important to know that RRSPs are less flexible than TFSAs, trust accounts or bank accounts for a young person, so they may not be the best saving option. Also, RESPs have a specific purpose—paying for post-secondary education.

Investing for teens: What makes sense?

If you are going to be part of the investment decision-making process for a brokerage account, I think it can be OK to bend the rules a bit. If you are building a stock portfolio, you generally want to have at least 20 stocks to get proper diversification. If you are investing $1,000, you may not be able to buy 20 stocks. You could buy a mutual fund or an ETF for diversification instead.  

Would it be a bad idea to put the whole account into one or a few stocks? Maybe not. Especially if the stocks are companies you can relate to and be interested in and learn from while investing, even if you end up under-diversified. That is a personal decision. But diversification is probably the most important part of investing.

What other investments can you hold?

Here is a brief summary of typical investment options:

• Cash (money): You can keep your money in a chequing account, but a savings account will likely give you a higher interest rate, especially if it’s a high-interest savings account (HISA).
• Guaranteed investment certificates (GICs): You can buy a GIC that pays a guaranteed interest rate for a specified term—typically between six months and five years. Generally, the longer the term, the higher the interest rate.
• Exchange-traded funds (ETFs): These funds hold many stocks, bonds or a combination—sometimes thousands—so they are diversified and often seen as a one-stop option for investors. You can choose from passively and actively managed ETFs that track various indexes and trade on stock exchanges.
• Mutual funds: Like ETFs, mutual funds hold a basket of securities (usually stocks or bonds), but unlike ETFs, their units don’t trade on stock exchanges. There are active and passive mutual funds that are managed by mutual fund managers. Fees tend to be higher than those of ETFs.
• Bonds: Buying a bond is essentially making a loan to a government or a corporation, in exchange for a fixed rate of return. Investors can buy individual bonds, although it is more common to own bonds through a mutual fund or an ETF.
• Stocks (also called equities or securities): This generally includes stocks listed on major North American stock exchanges such as the Toronto Stock Exchange and the New York Stock Exchange. You can also buy foreign stocks through some brokerages.

Real estate: Sorry, kids, you can’t buy a rental condo. Real estate ownership is limited to those who have reached the age of majority.

The teenage crypto millionaire dream

#Crypto is a trending topic on many social platforms. So, it has likely caught your attention. Most cryptocurrency exchanges require an account holder to be 18 or older, though some have lower limits or no restrictions. There are other ways for young people to invest in crypto on their own, but if a parent is opening an account, it must generally be in their own name. 

Cryptocurrency profits are generally taxed as capital gains. If the source of funds is your own, it may be a reasonable position that the capital gain is yours, not your parent’s, as the account is beneficially yours, despite legally being in your parent’s name. (Read more about cryptocurrency and taxes.)

Saving and investing: You want it to mean the same thing

There are different ways to save and invest for a young person. The first priority is selecting the account or accounts, and then the type of investment. Learning the lesson of saving and delayed gratification is important. Some will save in a bank account in cash, while others may learn the trade-off between investment risk and reward. Regardless, the sooner you can learn these lessons, the more money savvy you will be as an adult.

Read more about GICs as a good investment:

• How GIC interest rates work
• Registered or non-registered GICs: Which should you buy?
• 6 times when a GIC is a smart investment choice
• What types of GICs are available in Canada?

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

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