Everyone wishes a peaceful and prosperous life for their children. And to make it a reality, every parent must do financial planning for their kids. But making their dreams and wishes come true takes a lot of hard work.
There are plenty of ways to plan for the years ahead and contribute to your children’s finances. So, here in the post, we will provide our reader with seven tips from an expert if you need to be successful.
7 Tips You Must Follow
Here are some tips from professionals:
1. Open A Backup Account
Saving starts when you put some money aside, whether in the form of opening a bank account or in a piggy bank. Your children may be too young (if they are under 18) to open their savings account with a bank. However, you can open an account in their name as a parent. Then, once they reach legal age, they can own it!
It may even encourage them to adopt smart saving habits early. Even in the future, if family and friends offer them money for occasions like birthdays, they can add it to their savings account.
2. Apply For The Canada Child Benefit
Once you become a parent, you can apply for the Canada Child Benefit. The maximum Canada Child Benefit you could get is $6,639 per year for children under six and $5,602 per year for children 6 to 17. The CCB plan is based on family income from the earlier year and the total number of children. Check this article to know more about the difference between Canada’s Child benefits and RESP.
3. Open A Registered Education Savings Plan
Post-secondary education is expensive, and everything indicates that the costs will only increase. As per the Government of Canada, the average cost of four years of post-secondary education is approximately $60,000, which does not include travel, tuition, living and other expenses.
In such a situation, a registered education savings plan can help. It eases the burden on your child paying for their post-secondary education independently. With this plan, parents can delay paying taxes to some future period like completing their child’s colleges, universities and trade schools.
Besides this, Additional programs are available to assist with saving for post-secondary education, including the Canada Education Savings Grant, the Canada Learning Bond and more.
For example, suppose parents open an RESP for their child. In that case, they are eligible for additional benefits – the government may offer a 20% Canada Education Savings Grant (CESG) on contributions of up to $2,500 per year per child. As well, low-income providers may also be qualified for other government benefits.
4. Open Registered Disability Savings Plans
Similar to RESPs, Registered Disability Savings Plans are a savings option for parents with children who qualify for the Disability Tax Credit. The savings are not necessarily for education costs but rather for long-term savings for that child, especially for retirement.
RDSP contributions are not tax-deductible but are eligible for government grants until the beneficiary turns 49. Besides this, parents can open RDSPs for their children, and grandparents can open them for their grandchildren.
The process of withdrawing money from an RDSP is similar to RESP. However, it means they are taxable to the recipient, and the primary contributions can be withdrawn tax-free.
5. Get A Life Insurance
Life insurance is another key part of a financial plan for your children. Unfortunately, many parents overlook the importance of life insurance, but it is also a way to help your children financially. Keep in mind that you can purchase a life insurance policy for yourself to give your children the financial security they need if you die unexpectedly in future.
Whether you want to pay for your children’s education or help them with their lifestyle expenses, a life insurance policy can help.
There are three life insurance types that parents with kids can get:
- Permanent life insurance – Insurance that never expires. It blends savings with death advantages.
- Traditional life insurance – also called whole life insurance- offers coverage for the whole life, but there is a guaranteed sum for survivors.
- No exam life insurance – in this type of insurance, your insurance company will offer you medical exams at their cost.
6. Contribute To A Tax-Free Savings Account
Parents can contribute to a Tax-Free Savings Account (TFSA) for a child or grandchild. However, the TFSA contribution area does not start to accumulate until your child turns 18. From the year a child turns 18, a full year of TFSA entitlement is available. There is no tax impact for a contributing parent or grandparent.
TFSA contributions can be very flexible, especially for a young person. Best of all, there are no such requirements involved like in RRSP for contribution limits. Keep in mind, TFSAs are set annually by the government.
Similar to other methods, the process of withdrawal from a TFSA can also be made at any time, tax-free, and used for education, down payment or even future RRSP contributions, among others.
A crucial factor is that a TFSA belongs to the account holder. Therefore, a person who contributes to a TFSA effectively gives that money to them (child/grandchild) in future.
7. Hire Financial Advisor
Financial planning can be the secret to a happy life. So, it is better to consider hiring a financial planning advisor if you start to find your finances complicated. An expert can help you handle your finances and regulate your investments with your aims and risk profile to achieve your life goals as planned.
With the cost of living rising every year, parents need help planning their children’s finances. Financial planning is important to secure the child’s future and deal with unexpected situations. But, of course, every child is different, and so are the demands.
But one idea is common among the parents of every child: they want the best for their kids. In such a situation, children’s financial planning can help determine the best plan and invest the money for the child’s education and future needs.
Lastly, children deserve to have the best start in life. With your help, you can put them on the right path to their personal and financial success.