The latest numbers on TFSA contributions tell a story of untapped potential to build wealth and save on taxes. It may be unseemly to launch a harangue about making more use of tax-free savings accounts when people are under so much financial pressure right now because of high grocery and mortgage costs. So let’s take the high road and acknowledge that people who do use TFSAs are using them well. Here are four examples of the personal-finance goodness going on in TFSA land, taken from statistics issued earlier this summer by the Canada Revenue Agency.
Parents helping their young adult children
Anyone 18 and older can have a TFSA, and parents and family members can give a young adult money for a TFSA contribution with no tax consequences. You see families taking advantage of this in CRA’s data for 2020, which are the most recent available. TFSA holders aged 18 and 19 had a total of $438-million in their accounts, with an average contribution per individual of $4,367. This is a substantial amount that suggests a parent’s or grandparent’s hand in the background.
Young adults aged 18 and 19 are tapping into their TFSAs, too. There was an average of 6.8 contributions per TFSA holder in this age bracket – and an average of six withdrawals.
Women outmuscling men in contributions
Women typically live longer than men, which means they’ll need more financial resources. The latest numbers suggest they’re building this wealth in TFSAs. Total contributions to TFSAs in 2020: $43.3-billion by women and $42.3-billion by men.
That’s no one-off phenomenon. The cumulative total fair market value of TFSAs held by women was $231.2-billion, compared with $197.1-billion held by men. The average market value of TFSAs owned by women was $27,487, compared with $25,661 by men.
At age 80 and older, total TFSA market value was $34.8-billion for women and $23.4-billion for men. Validation of the importance of TFSA assets in helping retirees can be seen in the average withdrawals made by people aged 80 and older, which are much higher than for younger demographics.
The average 2020 withdrawal by women 80 and older was $22,439; for men in that age group, $23,889.
People making contributions manageable by breaking them into small pieces
A basic way to set yourself up for investing success is to make regular electronic transfers from your chequing account to your TFSA. Millennials are right on this idea of making multiple small contributions that add up.
TFSA 101: What to know about tax-free savings account limits, contribution limits and more
In the 30-to-34 age bracket, TFSA holders made an average of 21.7 contributions in 2020. The average total amount contributed was $8,172, which means an average of $376.59 per contribution.
Older generations tend to make fewer contributions – an average of 11.4 a year in the 60-to-64 age bracket.
A far bigger emphasis on contributions over withdrawals
A concern with TFSAs as a vehicle for building wealth is that people can easily access the money and spend it. By comparison, it’s prohibitively difficult to get money out of a registered retirement savings plan.
TFSA data for 2020 highlight the fact that people do tap into their TFSAs extensively, but there is still a clear emphasis on building TFSAs over drawing them down. The total amount contributed in 2020 was $85.6-billion, while withdrawals totalled less than half that amount, $39.1-billion. A total of 138.4 million TFSA contributions were made in 2020, compared with 23 million withdrawals.
The average number of contributions per individual was 14.8, compared with an average of 5.2 withdrawals.
The average amount of unused TFSA contribution room as of 2020 was $40,782, which compares with an average fair market value per person of $26,614. There’s a massive amount of untapped potential in TFSAs right now, but that’s life in a world where mortgage payments, rent, the cost of raising kids and the cost of recreation are massive. The more productive narrative is how well some people are doing with TFSAs.
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Rob Carrick