Posted on
October 1, 2024
by
The Linda Maguire Team
Know a teen? This one's for them. As the back-to-school season begins, it's a great time to think beyond just school supplies and new routines. |
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This is also an ideal opportunity to help teens develop essential financial skills that will set them up for life. Here are the top three things they should do first:
1. Open a High-Interest Savings Account
The first financial literacy skill to learn is saving. Follow the 50/30/20 rule: 50% for needs, 30% for wants, and 20% for savings. Starting this habit early, even with their first job, can establish a disciplined and proactive mindset about money, setting them up for a secure financial future.
Tip: Use a company with higher saving rates. Neo Financial offers a High-Interest Savings Account that currently earns 4%! Plus, there are no account fees, and electronic transfers are free, so you can link it to any other bank account.
2. Establish Credit Early
Teens aged 18+ (19 in some provinces) can start building credit by obtaining two credit cards. Although it might seem early, this approach helps create a strong credit history before adulthood, leading to lower loan rates and building good financial habits. Here’s how to get started:
Start with a Prepaid Credit Card from a Major Financial Institution
Begin with a small limit, such as $250. After 6-12 months of responsible use, they may qualify to have their prepaid portion refunded and receive a credit limit increase.
Monitor their balance for six months to ensure timely payments. Discuss these key points with them:
Credit cards aren’t free money.
Always pay the full balance monthly to avoid interest.
Missed payments impact credit reports.
Use free credit monitoring in your online banking to track your score.
Good credit = more possibilities.
3. Open a First Home Savings Account (FHSA)
The First Home Savings Account (FHSA) allows Canadians aged 18-71 to save for their first home with tax advantages. Contributions of up to $8,000 per year (up to $40,000 in total) reduce taxable income, and investment growth is tax-free when used for a first home. If unused, funds can be transferred to an RRSP. The FHSA must be used within 15 years, and contributions are penalty-free as long as limits are respected.
Tip: Set up an automatic transfer to your FHSA account to make saving easier.
Starting your teen on these three simple financial steps now will set them up for a successful future. If you have any questions or would like more information on how to get started, feel free to reach out.
