What should Students do with their summer earnings?

Q. I am 18 years old going to college next year. I have been working this summer and have saved a large amount of my earnings. I want to set some aside to buy a new laptop and to have spending money for the year but my parents what me to save it all and buy a mutual fund. What can I do to make them happy and still keep some of my money for myself? My parents already have an RESP for me, do you have any tips on what would be the best thing to do with my money?

A. Your earned income for 2006 will be less than the basic personal amount so you will not have to pay income tax. However, it is important for you to file a tax return because the Canada Revenue Agency will record your earned income and notify you (via the Notice of Assessment) of the amount of Registered Retirement Savings Plan (RRSP) contribution room you have. This RRSP contribution room is cumulative and can be carried forward indefinitely, so there is no rush to contribute immediately. In fact, while long term investing is prudent, you will make better use of the RRSP contribution tax receipt by waiting to a time that your income places you in a higher tax bracket. Because you have short-term needs for this money, contributing to an RRSP doesn’t make sense right now as you would incur fees to withdraw it.

As the beneficiary of a Registered Education Savings Plan (RESP) established by your parents, your parents can contribute to the plan, but you cannot.

A good idea might be to develop a monthly budget for the coming school year to determine your spending needs. Take the money that is left over from the budget and, with your parents, examine what mutual fund would be best for you. Because you have reached the age of majority, you are able to open an unregistered investment account.

Bev Moir is a financial planner with The Moir Team at ScotiaMcLeod in Toronto. A member of the Capital Improvement and Preservation Fund (CIPF) program, ScotiaMcLeod is a division of Scotia Capital Inc., part of the Scotiabank Group.

This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia.