Personal Finance

Why aren't more people taking advantage of TFSA?

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  • Jun 9th, 2015 12:10 pm
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Newbie
Oct 25, 2009
66 posts
5 upvotes
Toronto

Why aren't more people taking advantage of TFSA?

it blows my mind that more people aren't taking advantage of TFSA room or are using it like a bank account and getting like 1% interest. If you do have extra cash even if you can contribute a little bit each year it's better than Alot of people who put in zero because they don't see the point of it or think it's just a regular savings account. I don't think people realize the advantages
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Deal Addict
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Feb 24, 2015
1032 posts
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Fort Mac, AB/Lambton…
If you can only contribute a few hundred bucks and would prefer to keep it somewhere safe, then it's probably not actually worth it to put it into a TFSA. The tax savings really would be quite minimal.

Most people's employers will match their RRSP contributions, so the RRSP is the preferred account. And most people can't afford to save more than 10% of their gross incomes, so they don't max out their RRSPs even with employer matching.
Newbie
Jun 3, 2015
6 posts
2 upvotes
Toronto, ON
Agree it's a travesty. I back the movement to rename the TFSA to TFIA (tax free *investment* account).
Newbie
Oct 25, 2009
66 posts
5 upvotes
Toronto
I've met people who just don't get it though they can afford to put money in but have told me...You only get like 1 % interest if that in a TFSA. They don't understand you can put it into other investments too. My friend had no clue until I told her that
Deal Addict
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Feb 24, 2015
1032 posts
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Fort Mac, AB/Lambton…
You're preaching to the choir. I work with a lot of young guys with no kids, no significant debts of any sort (other than trucks), and who all make 130k or more, yet who probably wouldn't even know what a TFSA is. And our pension plan maxes out our RRSP room, so TFSA really is the only way to go for us. I'm pretty sure if I mentioned "TFSA" more than half of them would immediately be lost. "What's that? An STD?"
Deal Fanatic
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May 2, 2006
8353 posts
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GTA
Many are financially illiterate but also Canadians are carrying record amounts of debt.
Sr. Member
Mar 21, 2010
844 posts
273 upvotes
Edmonton
justaskthescientician wrote: If you can only contribute a few hundred bucks and would prefer to keep it somewhere safe, then it's probably not actually worth it to put it into a TFSA. The tax savings really would be quite minimal.

Most people's employers will match their RRSP contributions, so the RRSP is the preferred account. And most people can't afford to save more than 10% of their gross incomes, so they don't max out their RRSPs even with employer matching.
This is pretty much my line of thinking. Getting two dollars for every dollar I contribute and also reducing taxable income seems to be more of a benefit than saving in a TFSA, if the choice is between the two.
Deal Fanatic
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Jun 11, 2001
9475 posts
1610 upvotes
Decent financial knowledge and practical budgeting/savings is definitely NOT the norm. Consider yourself an outcast.

When I tell family/friends we save over 50% of our take home they wonder how we even are able to afford anything, LOL. We don't have $100+ cell bills, $200+ cable package, or drive an impractical car... or live in a mcmansion (couldn't afford one in TO anyway).

And yes TSFA is a FANTASTIC savings tool. Lower earners don't comprehend it is MUCH MUCH better for them to use TSFA instead of RRSP (unless work matched).
...zzz...zzz...zzz...

www.heatware.com
Sr. Member
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Apr 5, 2009
948 posts
334 upvotes
Toronto
ihatebell wrote: This is pretty much my line of thinking. Getting two dollars for every dollar I contribute and also reducing taxable income seems to be more of a benefit than saving in a TFSA, if the choice is between the two.
It also matters when you plan to withdraw that money. If you are saving for a short/medium term goal, RRSP is not a good choice, unless you are certain that your income will be in a lower tax bracket in the year of withdrawal. For example, if one were to quit a high paying job and pursue some other endeavours for a while, it might make sense to put the savings into an RRSP and withdraw when you have little to no other income. But if you are just saving for a new car, or a short vacation - TFSA is a better way to go. On the same note, low interest - but guaranteed to preserve the principal - TFSA accounts are probably a batter bet for short term savings like that.
Deal Addict
Dec 5, 2005
1303 posts
960 upvotes
Cambridge,Ontario
greenmoon wrote: On the same note, low interest - but guaranteed to preserve the principal - TFSA accounts are probably a batter bet for short term savings like that.
That's exactly the thinking that a TFSA account is only for a "savings" account.Completely wrong and that is the OP's point.They may be better for short term saving but to imply that they are guaranteed to preserve the principal shows your lack of understanding what you can do with a TFSA.
Jr. Member
User avatar
Jul 19, 2013
167 posts
43 upvotes
Toronto
I wish I could contribute more but expenses have creeped up and on a small income it is difficult. I've gotten all my friends to open one up, and start investing, most have more $ to contribute so I know even youngins like myself can get interested in it. Anytime I get some extra cash I do contribute and buy something (etf, index funds, etc...)
Deal Fanatic
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Nov 2, 2013
5697 posts
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Edmonton, AB
I use mine to buy stocks, partly because I know I won't get taxed for gains. Though without taking excessive risk, with the 40k limit the taxes you save on your yearly gain (let's say 4k; 10%) is a small amount in the grand scheme of things. Which is why probably a lot of people don't bother and just use their margin account, which is open to options and borrowing to invest.

Admitally I use mine to hold some penny stocks, which you can't invest/trade with margin and may double in value in months (for which the tax will be much worse) so naturally I put those in the TFSA. But the catch is you can't claim losses with the TFSA, so it's a double edged sword.

Generally though it's great to use as a convenient savings account, whether you buy stocks or not. It's relatively flexible and beats letting those funds sit in your chequing or using a margin account when you don't trade options or borrow to invest.
Accountant (Public Practice)
Deal Expert
Feb 29, 2008
30106 posts
5547 upvotes
Montreal
goldlist wrote: Agree it's a travesty. I back the movement to rename the TFSA to TFIA (tax free *investment* account).
Well we don't have RRIPs and it's no issue
Deal Expert
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Oct 16, 2001
76501 posts
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Using it to what degree, not maxing it out, or using it at all?
Sr. Member
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Apr 5, 2009
948 posts
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Toronto
yyz64 wrote: That's exactly the thinking that a TFSA account is only for a "savings" account.Completely wrong and that is the OP's point.They may be better for short term saving but to imply that they are guaranteed to preserve the principal shows your lack of understanding what you can do with a TFSA.
Obviously, TFSA in itself has no guarantee of preserving principal. You can do whatever you want in the TFSA, but the choices you make will be guided by the goals you have. If you are saving long term for retirement and have access to contribution matching for RRSP, then you'd probably pick to maximize that first. If you are planing a significant expense that is more short term, RRSP is not a good match, but investing in risky stocks within TFSA isn't either. If your investment goals are longer term and you are tolerant to more risk, sure, that might be a good reason to open up something other than just a vanilla low interest TFSA. The question really becomes, how many people have the money to allocate to those kinds of investments?
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May 11, 2014
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mr_raider wrote: Well we don't have RRIPs and it's no issue
The issue though is TFSA is "Savings Account." And how banks offer them as such makes people think it is only savings accounts.
Deal Expert
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Oct 16, 2001
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greenmoon wrote: Obviously, TFSA in itself has no guarantee of preserving principal. You can do whatever you want in the TFSA, but the choices you make will be guided by the goals you have. If you are saving long term for retirement and have access to contribution matching for RRSP, then you'd probably pick to maximize that first. If you are planing a significant expense that is more short term, RRSP is not a good match, but investing in risky stocks within TFSA isn't either. If your investment goals are longer term and you are tolerant to more risk, sure, that might be a good reason to open up something other than just a vanilla low interest TFSA. The question really becomes, how many people have the money to allocate to those kinds of investments?
Only so much money at the end of the day, and while saving more is always good, cant always be the case either. Even being frugal, there are always bills to pay to even live.

I use my TFSA, but its not even close to being maxed out. Called having a balance, Im sure I could put more in it, but I also make money to use to it today as well to enjoy some of my life
Newbie
Jun 3, 2015
6 posts
2 upvotes
Toronto, ON
I think another reason people might not take advantage of the TFSA is that it's difficult and confusing to set up an investment account. You've got to navigate all types of commission sales people (masquerading as financial advisors), sign mountains of paperwork, over multiple visits. And none of the words, phrases, acronyms, fees, or much of anything is familiar or simple.

It all comes down to education. It doesn't need to be so confusing or complicated. We need to think about introducing personal finance concepts into high school (if not elementary!) curriculums.
Deal Expert
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Oct 26, 2003
39338 posts
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Winnipeg
justaskthescientician wrote: If you can only contribute a few hundred bucks and would prefer to keep it somewhere safe, then it's probably not actually worth it to put it into a TFSA. The tax savings really would be quite minimal.

Most people's employers will match their RRSP contributions, so the RRSP is the preferred account. And most people can't afford to save more than 10% of their gross incomes, so they don't max out their RRSPs even with employer matching.
TFSA is a lot more work than RRSP, I just bought TFSA index funds 2 minutes ago and I had RRSP going for years...
Deal Fanatic
Jun 17, 2013
5120 posts
1501 upvotes
Montreal
divx wrote: TFSA is a lot more work than RRSP, I just bought TFSA index funds 2 minutes ago and I had RRSP going for years...
I would argue RRSP is more work. In the end, they are about the same. They can invest the same. The only real difference is when tax comes into play.

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