Saving for Your Child's Future
Wednesday, 6 November 2019
We love and cherish our children, and never think twice about trying to give them the world. We foot the bill and do whatever we can to make them happy. However, the cost of raising children can be quite expensive! From the diapers, dance lessons, toys, birthday parties and school field trips, these things can add up over the years. When they reach their adolescent years, they can get a job of their own to help accommodate themselves financially, however they still need a little bit of help when it comes to their financial futures as adults. One way we can help them is through saving for your child's future.
Before you even think about beginning to save for their future, you need to put your financial savings first. This may seem counterintuitive, or even selfish, however, you need to make sure you have enough money to support yourself during retirement before saving your money for your children. It is extremely important to ensure your financial security, this means being debt-free and investing a percentage of your income for your retirement. This will give your children a greater peace of mind when they are adults and on their own.
Saving for Your Child's Future Education
A very popular reason to save for your child's future, is their education. Post-secondary schooling is not cheap, and tuition is increasing year by year. It is suggested to start saving money through a RESP (Registered Education Savings Plan). A RESP can provide a tax-advantaged way to save, and there are also grants available from the government to help with tuition. The Canadian Government will contribute an addition 20% of your contribution, up to $500 per year, or $7200 total. Before opening a RESP for your child, roughly estimate the amount you will need to save in order to pay for their tuition. This estimation could include related expenses such as books and living costs if they choose to move away for school. These numbers can get overwhelming, however there are plenty ways for your child to contribute to the total amount, including part-time employment, scholarships and bursaries, grants and potentially getting help from grandparents or other relatives. Each child has a limit of $50,000 in their RESP.
Other Savings Accounts
If you are lucky enough to run out of room in a RESP, you have a few options; You can open a trust fund, a TFSA (Tax Free Saving Account), or a regular savings account. The returns in traditional savings account are smaller due to low interest rates, but it is a very safe option when saving for your child and it can be opened in their own name regardless of age. In a TSFA, you invest your money and allow it to grow tax-free until it is needed. TFSA savings can be transferred over to your child when at the age of 18 they can open their own TFSA.
If you decide against handing your children a large sum of money, you could consider providing them with a non-monetary gift. Popular gifts include down-payments on their first house or paying for their wedding. Not only is tuition increasing, but the average house price in Canada is increasing too. Currently, the average price is around $500,000, which means that first time homebuyers must provide a very large down-payment. This large price tag can be very difficult for recent graduates and young couples who are looking to start a family to afford.
Advice to Save
There are numerous ways to start saving for your child's future, even if you think you cannot afford it. You can start by putting away the Universal Child Care Benefits that are received from the federal government. You can also sell old clothes, furniture, car seats or strollers when they outgrow them, then put that money into a savings account. You don’t need to wait until you have a large amount to deposit, you can start with putting in small amount every week or month. You can set up a direct deposit into their account monthly to an amount you can afford, you would be surprised how quickly these small deposits can add up, especially over 18 years!
No matter what position you are in, there are plenty of ways to begin saving for your child’s future, and you don’t need to start the month they are born. Talk to a BIG financial advisor to see what works best for your lifestyle. We understand that everyone is unique when it comes to finances, so we help work for you! Let us know how we can help you set up a plan to start saving.