Tax Refunds to TFSA: Gen Z’s Investment Ambition Meets Knowledge Gaps

The 2025 tax season has brought a striking revelation: 76% of Gen Z Canadians expecting a tax return plan to invest it, far outpacing older generations. Yet, despite this enthusiasm, many Gen Z struggle to navigate the tools best suited for their goals. A recent TD survey reveals that only 51% hold a Tax-Free Savings Account (TFSA), with nearly one-third of non-holders citing a lack of understanding about how TFSAs work. This disconnect underscores a critical opportunity—and challenge—for financial literacy in Canada.

The Gen Z Investment Drive

Gen Z’s eagerness to invest tax refunds reflects a broader shift toward proactive wealth-building. The TD survey highlights that 76% of 18- to 24-year-olds intend to allocate refunds to investments, compared to 60% of Millennials and 48% of Gen X. This ambition aligns with economic pressures: 90% of Canadians have adjusted financial plans due to inflation and rising costs, with younger generations disproportionately affected by student debt and housing unaffordability.

But enthusiasm alone isn’t enough. While Gen Z wants to invest, many remain unsure how to leverage tax-advantaged vehicles like the TFSA. Only 51% of Gen Z hold a TFSA, and 30% of non-holders cite confusion about its mechanics as a barrier. This knowledge gap risks leaving millions of dollars in potential tax-free growth untapped.

Why TFSAs Matter—and Why Gen Z Is Missing Out

The TFSA is a cornerstone of Canadian savings strategy. With a $7,000 annual contribution limit for 2025, it offers tax-free growth on investments, from stocks to GICs, and allows withdrawals at any time without tax penalties. For someone who turned 18 in 2009, cumulative contribution room now totals $102,000, with unused room carried forward indefinitely.

Yet, Gen Z’s TFSA underutilization is stark. A 2022 Statistics Canada report shows that while 2.57 million Gen Z Canadians hold TFSAs, 1.04 million did not contribute in the prior year, and 828,670 withdrew funds. This suggests many treat TFSAs as short-term savings accounts rather than long-term investment tools—a misconception highlighted by financial advisors.

“People think of TFSAs as restrictive ‘savings accounts,’ but they’re actually flexible investment vehicles,” says Tara Lalehparvar, a financial planner at Skyward Financial. “They’re like empty boxes where you can choose stocks, bonds, or ETFs. The TFSA itself doesn’t grow money—it’s about what you put inside.”

The Barriers: Money and Misinformation

Two key factors hinder Gen Z’s TFSA adoption. First, 51% of non-holders cite insufficient funds. With average student debt exceeding $30,000 and stagnant wages, many feel they can’t spare even the minimum contribution. Second, 20% admit confusion about how TFSAs work, often conflating them with retirement accounts like RRSPs.

But small, consistent contributions can yield big results. For example, investing $200 monthly in a TFSA (well below the $7,000 annual limit) in a diversified portfolio returning 6% annually would grow to $103,000 over 30 years, all tax-free. Withdrawals are penalty-free, allowing flexibility for emergencies or big purchases—a critical feature for younger investors.

Closing the Gap: Education and Action

The solution lies in bridging the knowledge gap. Financial institutions and educators must emphasize TFSAs’ versatility and long-term benefits. For Gen Z, starting small—even with tax refund dollars—can build habits that compound over decades.

The numbers are clear:
- 76% of Gen Z want to invest refunds, yet only 51% use TFSAs.
- $102,000 in cumulative TFSA room by 2025 for those who turned 18 in 2009.
- 90% of Canadians are adjusting financial plans amid inflation—a window to prioritize tax-efficient savings.

Conclusion: A TFSA Renaissance for Gen Z

Gen Z’s investment ambition is a positive sign for Canada’s financial future. However, the TFSA’s potential remains underused due to misinformation and resource constraints. By demystifying TFSAs—emphasizing their flexibility, tax advantages, and compounding power—Canadians can turn tax refund windfalls into lifelong wealth-building engines.

For Gen Z, the path forward is clear:
1. Use tax refunds to seed TFSA contributions, even in small amounts.
2. Leverage carry-forward room to catch up on missed years.
3. Educate themselves via tools like the CRA’s My Account or financial literacy resources.

With TFSA assets growing at an 8% annual rate (per BMO), the stakes are high. By aligning Gen Z’s enthusiasm with the TFSA’s strengths, Canada can nurture a generation of financially resilient investors—ready to weather economic storms and build long-term prosperity.