The Calgary Journal
The Calgary Journal

Tax-free savings accounts prepares young adults for their retirement

thumb savingsSavings and retirement may not be at the forefront of young adult's minds, especially those who are in school. But the sooner they can start saving, the better off they will be in the long term.

Brock Robillard, a 24-year-old accounts manager at Hamilton + Partners, said that he advised his friends and younger brother of the benefits of a tax-free savings account. He thinks that many young people do not think about their financial futures, and lack the financial knowledge to do so.

"A lot of people come out of school with a lot of debt and they don't think that far ahead. They may have other priorities like rent, vacations, or just having a good time," Robillard said.

A tax-free savings account is an account that is very low risk and a good option for young people because there are no tax deductions and they can take out money whenever they want to without penalty.

The government website tfsa.gc.ca says the tax-free savings account is "a flexible, registered general-purpose savings vehicle that allows Canadians to earn tax-free investment income to more easily meet lifetime savings needs. It complements existing registered savings plans like the RRSP and the RESP."

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Robillard says that even putting a little bit of money away will make a big difference in the long run. "It is about getting through to people that the earlier they start saving, the better."

"We had a chart in the office showing someone who started saving at age 25 and someone who started saving at age 35. The person who started 10 years earlier is going to have double the amount of money," he said.

Worrying about money later

"Some people think, '65, I'll think about that when the time comes,' but it is important to think about your financial future," he adds.

Young adults often focus on paying off other debts, especially student loans.

Financial advisor Ian Pavey says that student loan debt isn't necessarily bad debt and that young adults should put away any money they can as soon as possible.

"If they're coming out of school with debt, interest rates should be low. Their loan is tax deductible, and hopefully they will be in a position to get a good job. There is nothing wrong with student loan debt," Pavey said.

"Credit card debt is the bad debt that gets people into trouble," he adds.

SavingsA tax- free savings account is a good way for young people to start saving.
Photo by: Shannon Galley

Pavey said that education is important when it comes to money, and that young adults may not be aware of the options the government offers to Canadians to save money.

Pavey also said that people aren't educated about their financial future and some assume that the government will just take care of them in retirement. But in reality, he said, government pensions will not be enough, so putting money away throughout a career is important.

The tax-free savings account offered by the government is a way for the government to try to encourage people to start saving, Pavey said, "It is a flexible way to save money."

Thinking about their financial future

Colin Jabusch, a 22-year-old accounting student at Mount Royal University, or MRU, opened a tax-free savings account on Jan. 1, 2012.

"A lot of people come out of school with a lot of debt and they don't think that far ahead. They may have other priorities like rent, vacation, or just having a good time."
— Brock Robillard,
financial planner

"I took a retirement planning course at MRU which was beneficial," he said, adding that the course made him more aware of his financial options for saving. He said he also thought about opening up an RRSP but right now the fees for the account would be too much for his small amount of savings.

Susan Norris is a 26-year-old who opened an RRSP when she graduated from Memorial University in 2009. She knew that she wanted to buy a house when she moved to Calgary and wanted to take advantage of a home buyer's plan.

She bought her house in Calgary within six months of graduating — at the age of 24.

Norris said that saving isn't complicated and can be accessible to anyone. She said creating various savings accounts on top of a pension plan is important.

Norris saved up money in a high interest savings account and worked on and off during school while going to university and living at home in Newfoundland.

"You want to take advantage of it while you're young. It is not something that you want to think about when you're retiring. You'll have missed out on years of potential savings," she adds.

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