Financial Literacy for Youth

Last week we posted a call for financial questions, and quite a few were submitted.  So we’ve asked Percy Tam, a Chartered Accountant at KPMG to answer some of them for us!  (Percy is also our very own workshop coordinator! Come meet him at our conference!)  Here are the answers to your questions below!  If you have more questions, post them in the comments below, and we will try to answer them again next week!

Would you recommend investing in stocks/currency? If yes, why?

Investing in stocks and currency can be an important part of your portfolio of investments.  However, it is also very risky for individuals who are not prepared to put in the time and effort required in order to gain a good understanding of these complex instruments.  The best advice I can give is to invest in something only if you really understand it and are aware of the risks involved.  Until then, leave your money in a savings account or a fixed deposit at your local bank or credit union, where the government guarantees your money.  When you have a better understanding of how trading stocks and currency works, then you can decide if it is a good fit for you.  Not everybody will have the risk tolerance to trade these types of investments.  The most important thing is to pick the types of investments that you will be happy with, to not just follow the crowd and buy what everybody else buys.

Explain the term “broker”.

A broker is somebody who fills a role in a transaction by providing a link between a buyer and a seller.  For example, when I trade a stock, I cannot sell it directly to the buyer, as the buyer is probably somebody that I do not know and is in a completely different city.  Instead, I place an order with my broker, instructing him/her to sell my stock.  On the other side of the world, the buyer also places an order with his/her broker, instructing that he/she would like to buy that stock.  While the two brokers do not know each other and do not work at the same company, they have access to the “marketplace” where the stocks are bought and sold, and so they can be electronically matched up with each other to make the sale.  Both brokers earn a commission (payment from the buyer and seller) for arranging the sale.

Do you think we are doomed to financial woes in the future when the baby boomers are retired?

Absolutely not.  As more baby boomers retire, that will open up more job opportunities for people of your generation.  Technology will continue to advance, so that we will not need as many people working as we used to in the past.  Every generation goes through different changes and every generation learns to adapt and succeed.  We are going to be just fine.

What are your current major investments?

My current major investments are Mutual Funds, Exchange Traded Funds (kind of like a mutual fund that you trade on the stock market), fixed deposits at my financial institution, and my car.  My investments are suitable based on my personal situation, but my friends have a completely different mix of investments because their situations and personal preferences are different.

When do you plan to retire? How would you go about doing that? (If the answer is no, why not?)

I do not know when I plan to retire yet.  I’m still 25 years old, so I have some time to go before I plan to think about that.  I still do not know where my career is going to end up yet!  But I do know that I need to make good financial decisions, as my decisions today will have an even bigger impact when I am older.  I want to make the right choices now so that even if I decide to retire when I am a bit younger, I will have the financial security to do so.  I am currently making the maximum contributions to my RRSPs and my TFSAs (please ask your financial advisor or somebody at our trade show if you would like to know more about these things) and have done the calculations to know that if I continue to do so, I will be free to make the decisions that I want to when I am ready to do so.