The Great Canadian Personal Finance Quiz

Personal finances can be complex. Not only can the concepts and rules be challenging, but everyone’s situation is also unique: a logical money decision for one individual might be an inappropriate move for someone else. And there may be a lot at stake in his decisions: his retirement, his children’s education and his lifestyle may be at stake.

At each stage of life, not only do your life goals change, but also your financial approach. At age 25, budget may be your most important concern. At age 50, your tax strategy may dominate your thinking. Fortunately, greater financial knowledge can enable people to make more informed decisions.

So before you make your next money move, here’s your chance to test your financial knowledge. We hope that this is an opportunity to learn and motivate you to apply your knowledge to your financial scenarios with a fresh eye.

1) What percentage of your annual income can you contribute to your Registered Retirement Savings Plan (RRSP)?

A. There is no limit
B. 18% of your income, with some exceptions(1)
C. 10% of your net worth
D$6,000

ANSWER: B

Investing in mutual funds and other investments within an RRSP can be a great way to benefit you and your family now and in the future. Contributions to the RRSP can reduce your taxable income and can even help contribute to an annual tax refund. With annual contributions over time, investments within an RRSP can provide a method of building savings to fund your retirement years. You can continue to contribute to an RRSP until the end of the calendar year when you turn 71.

2) The homestead exemption is….?

A. A tax exemption for seniors who sell their home
B. A deduction for those who help their children with their first home
C. A tax credit for home renovations
D. A capital gains tax exemption on a primary residence

ANSWER: D

When you sell a property, any capital gains are taxable. This could be a significant burden for those selling real estate because the returns on real estate could be large (especially given the current real estate market). Fortunately, the principal residence exemption grants an exception for your principal residence or family home (under certain conditions). If you have more than one property, it’s best to consult a financial advisor on how you can manage the primary residence exemption or other tax strategies.

3) How old does a child have to be to have a Registered Educational Savings Plan (RESP) established for them?

To one year
B. One year old but younger if your sibling has a RESP
C. No minimum age as long as the child has a social security number
D. There is no minimum age as long as one parent has an RRSP

ANSWER: C

The fact that you can start contributing to a RESP in the first year of a child’s life means you have a number of years to contribute to your child’s education before you actually need to use the funds. The Canada Education Savings Grant is also available, up to a maximum of $500 per year (up to $7,200 total). Annual contributions can be invested; they can accumulate over time and can offset future educational costs.

4) The most important advice a financial advisor can give you is about:

A. Retirement Planning
B. TFSA
C. Paying for a child’s post-secondary education
All previous

ANSWER: D

Members of a typical household can be very busy balancing today’s needs with tomorrow’s plans. Often, it’s about juggling short-term and long-term goals: paying bills, saving money for a child’s education, or even making sure she’ll enjoy her retirement. A financial advisor can provide options related to budgeting, saving, and planning her goals. With investing, a financial advisor can discuss your risk tolerance, time horizons, and financial goals to see which products are right for you.

5) The best method to calculate how much income you need for retirement is…?

A. Your highest maximum income, minus 10% per year
B. 7% of your savings annually, multiplied by 25 years of retirement
C. It depends on the value of your house and when your children move
D. It is based on your personal situation and tied to your retirement goals.

ANSWER: D

Retirement planning is probably one of life’s top goals: What you do with savings and investments in the first two-thirds of your life can influence the choices you have in the last third. And your family, your finances, and your desires and intentions are different from anyone else’s, something no standard formula can capture. That’s why it may be best to consider finding a financial planner who can help shape a goal-based financial plan. It can take care of your current needs but also help you achieve your goals when you are no longer working.

6) When there is economic uncertainty, avoiding the stock market is the best method to keep your money safe in the long term.

A truth
B False

ANSWER: B

During economic uncertainty, some investors may panic and liquidate their investments in the hope that they can avoid a market sell-off. In a study, TD Asset Management suggests what can happen when investors try to time the market and stay on the sidelines during periods of growth: If you had missed the 1% of the best market days between 1989 and 2019, your portfolio would provide significantly lower performance. You can read more about The Power of Staying Invested.

7) When a parent transfers assets to an adult child in a will, the child pays taxes on the property received, but not on RRSPs or Tax Free Savings Accounts (TFSAs) under Canadian inheritance tax.

a. correct
B. Incorrect: The beneficiary does not need to be a child
C. Incorrect: Artworks will also be taxed
D. Incorrect: There is no Canadian inheritance tax

ANSWER: D

It’s a tricky question, but many Canadians may be unsure how taxes work when assets pass to family members named in your will. Although the beneficiaries do not pay taxes on the assets received, that does not mean that the taxes will not affect the estate. Anyone who wishes to leave a legacy for her family will want to consider how to organize their money, property and other assets to mitigate taxes when they pass away. These are things a professional planner can help you with.

8) Fact Check: At age 60, you should withdraw your investments from your TFSA.

A. Yes, correct
B. No, but you must withdraw 7% per year
C. No, there is no age limit to withdraw funds
D. No, but you must make a full withdrawal at age 65

ANSWER: C

One of the valuable things about TFSAs is that there is no maximum age at which you must stop contributing. Plus, you never lose room for contributions if you don’t add a year to your TFSA. In fact, even if you make a withdrawal, that withdrawal amount will be added back to your TFSA contribution room at the beginning of the following year.

Financial education is a skill that can provide immediate benefits. Knowing how best to use registered accounts like RRSPs, TFSAs and RESPs can ease some of the anxiety around long-term financial goals like retirement or saving for a child’s education. But putting together all of your financial responsibilities and desires can be complex—a conversation with a financial advisor can provide you with appropriate recommendations that match your unique situation.

1. Your annual contribution limit is related to how much you earn. For 2021, the RRSP contribution limit is 18% of the previous year’s earned income, up to a maximum amount of $27,830 (an amount set each year by the government), plus any previous unused contribution space less pension adjustments.


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