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Money and Happiness | The 0.1% of Desjardins

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In the newsletter money and happiness, sent by email on Tuesday, our journalist Nicolas Bérubé offers reflections on enrichment, the psychology of investors, financial decision-making. His texts are repeated here on Sundays.

My colleague Marie-Eve Fournier published a column last week that made noise about the fact that Desjardins lowered the interest rate offered to toddlers.

At a time when interest rates are exploding around the world, the rate offered by Desjardins to thrifty children has gone from 1.1% to 0.1% per year on savings accounts. And that’s for accounts of $500 or more. The rate is even more ridiculous for accounts $499 and under.

I admit it: I didn’t know that Desjardins still offered this program to schoolchildren. I told myself that low interest rates and electronic transactions had surely got the better of this school program that I used when Montreal had a baseball team and Kraft Dinner was good for your health.

But no, according to the latest news, around 90,000 students take part in this tradition which has lasted for more than a century, with its little envelopes in which one deposits pennies and folded banknotes.

For me, the problem is not that Desjardins has lowered the rates offered to children — even if it is not ideal. It comes from the fact that we agreed to receive 1.1% on our savings in the first place.

Of course, I am not criticizing the parents of the 90,000 children. They have the right instinct: wanting to teach their children about saving, and instilling in them habits that can, with a bit of luck, follow them throughout their lives.

But can we get their attention with 1% growth on their savings?

That’s why I didn’t open a savings account for my son. I reject the idea that the money we set aside should earn us less than inflation.

A child who invests $5 per week at 1.1% would have $2,762 after 10 years. Of this amount, $162 is interest — the investor’s “salary”.

A child who invested $5 a week in a portfolio made up of 60% diversified index exchange-traded funds (ETFs) and 40% bonds (a portfolio that has returned 8.59% per year on average for 50 years) would $4206 after 10 years. Of this amount, $1606 is growth.

A much more eye-catching starting point to encourage his child not to spend all his money on Pokémon cards or a pair of Air Jordans.

In my discussions with my boy, I tell him that a company is divided into pieces of cake, and that we, the investors, buy these pieces of cake.

Over time, the cake gets bigger, and so our slices get bigger too. The more patient we are, the more we can see our shares grow.

Shares don’t always grow. This year, they are getting smaller. But that’s also part of learning. This 8.59% does not fall from the sky. We have to earn them by being patient.

How to make your child become an investor?

It is not permitted in Canada to own an investment account before the age of 18.

One of the ways to comply with the law is therefore for parents to open a discount brokerage account, invest their child’s money in it, and transfer the investments to him when he turns 18 (ideally so that he or she puts them in a TFSA, so that the sums can grow tax-free from that moment).

The parent will likely pay some tax when transferring the investments to their adult child, but unless they’ve invested huge sums, the tax should be minimal.

Also, be careful: many financial institutions require a minimum balance in discount brokerage accounts, below which they charge fees of around $100 per year.

That’s why I prefer services like Wealthsimple Invest, which you can start using with just one dollar to invest. And there’s even the option of choosing a portfolio of socially responsible companies.

As Benjamin Franklin wrote, “Money makes money. And the money that makes money makes money. »

Desjardins has understood this. Let’s make sure our kids get it too.

Reader’s reaction

I asked you recently if you made speculative investments. The question challenged Michel-Claude Demers, from Quebec, who writes:

“NO, I no longer invest speculatively. I burned my wings several years ago putting $5,000 into starting a business at the invitation of a friend. Being even more convinced (or crazier?), he had even put his house as collateral for a loan intended for the company in question. He lost his house and I lost my $5,000. A hard-learned lesson that I passed on to my three children who also don’t invest speculatively. »

Humans have the ability to learn from the experience of others. Don’t let her pass.



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