Financial Power

Did you know the average cost to raise a child to age 18 is about $163,000 according to Vanier Institute of the Family viewed April 21,2005. The truth is most of us don’t think about the cost when we decide to expend our family with children. Children are the most expensive but rewarding additions to your life.

Congratulations!

You’re entering an exciting new stage in your life: parenthood! You’ve probably already painted the nursery and registered for toys at the baby superstore. But have you thought about how your new baby will impact your financial future?

Consider these steps for financial security:

1. Plan for tomorrow…..today.

If you have children, you NEED life insurance. No one wants to think about tragedy or loss but, now that you’re a parent, you should prepare for the unexpected. Whether you’re a breadwinner or a caretaker, your death would impact your child’s life in so many ways. Protect your child’s future with life insurance.

Most experts recommend Term Life Insurance, which provides the largest death benefit for the lowest cost. How much insurance do you need depends on your financial situation, but a good rule of thumb is enough to replace 8-12 times your income.

2. Make your wishes known.

You need more then more then just a will that gives legally binding directions for dividing your assets. As a parent, it’s important to name someone you would like to serve as the guardian for your children in the event of your death. Without a will, the government could appoint the guardian for your children.

3. Tackle your debt.

The best way to protect your income is to watch your spending. Don’t go running up your credit card debt by buying a fancy crib, the latest “diaper warmer” or the most expensive stroller and car seat. Sure, you’ll have to set up your baby’s room, buy clothes and make other special purchases. But don’t let your spending get out of control. Many times it’s not the child “need” but it’s a “show off” for the parents, and if you have the money go ahead and enjoy it, but if you don’t have the finances just for the show off do NOT charge the plastic.

Take charge, conquer your household expenses and start saving.

4. Save for a rainy day….and more.

Now is time to get a strong savings plan in place and put some money away every month. Although sending your child off to university might seem like a long way off, soaring tuition costs make it worth your while to start saving now. The Canadian Education Savings Grant (CESG) is a grant from the Government of Canada paid directly into a beneficiary’s Registered Education Savings Plan(RESP).

5. Get your financial snapshot.

From toys to diapers, your spending is about to change dramatically! Before you frame your baby’s first photo, get a “financial snapshot” taken. Contact a financial planner to overview your financial situation and suggest a personalized game plan for your financial security.

A child changes your life forever.

Questions are raised: how a child will fit into your financial picture? How are you going to raise that child? How are you going to pay for their University/College?

I guess the only way to ensure that money is available when needed to save for it NOW.

Did you know? “ A Statistics Canada survey showed that, on average, someone with a bachelor’s degree had a net worth 70% higher than someone with only a high school diploma. And, an individual with the master’s degree had a net worth 2.7 times higher, while holders of doctorate were 3.5 times higher”.

Post-secondary education is very important for the kids. According to the Association of Universities and Colleges of Canada: “over their lifetime, university graduates on average earn $1 million more than do those without a postsecondary education”. The chance to become a million dollars richer with post-secondary education is much better than winning lotteries.

Loving parents and grandma or grandpa: save one loonie or one toonie a day in the form of RESP (Canada) will lay a sound ground financially for your kids’ or grandson’s or granddaughter’s post-secondary education and make them one million dollars richer.

What is an RESP Canada (Registered Education Savings Plan)?

The Canadian RESP (Registered Education Savings Plan) is a savings plan that is registered by the Government of Canada to allow savings for a child’s education to grows tax-free until the child is ready for his/her post-secondary education. Unlike RRSPs (Registered Retirement Savings Plans), the contribution for RESP Canada is not tax deductible. RESPs offer an attractive vehicle for parents and grandparents to help save for a child’s post-secondary education.

You may contribute a lifetime maximum of $50,000 per beneficiary. There is no yearly contribution limit. The government will contribute an additional 20% on the first 2,500 of your annual contributions. This contribution is called the Canada Education Savings Grant (GESG). The most CESG a beneficiary can receive for the life of the plan is $7,200.

Enhanced GESG Payments:

If Family income is….then the CESG will be…..

More than yearly prescribed income threshold 20% on the first $2,500 annual contribution

Between the yearly prescribed income 30% on the first $500 annual contribution/p>

Threshold and half that amount 20% on the next $2,000 annual contribution

Less than half the yearly prescribed income 40% on the first $500 annual contribution

threshold 20% on the next $2,000 annual contribution

What is Canada Learning Bond (CLB)?

Canada Leaning Bond was introduced in the Budget 2004 of the Government of Canada which will provide up to $2,000 for children born after 2003 in families entitled to the National Child Benefit supplement (NCBS).

Starting from January 1, 2004, a new born baby who qualifies for the National Child Benefit supplement will get $500 in the form of Canada Learning Bond from the Government of Canada when first opening a RESP account. An additional $100 will be contributed into the CLB account each subsequent year until the child reaches 15 for a total of $2000, as long as the child remains eligible for the NCBS.

In addition, $25 will be provided by the Canadian Government along with the initial $500 bond to help covering the cost of opening a RESP account.

Withdrawing from an RESP.

An RESP must be terminated on or before the last day of the 25^th year following the year in which the plan was started.

Any income earned from RESP contributions grow tax-sheltered until the child attends a qualified post-secondary institution and begins withdrawing founds. When withdrawals begin, the student pays tax on the income portion at his or her marginal tax rate. The original capital is returned to the subscriber and is not subject to tax.

If the beneficiaries do not pursue post-secondary education, the capital is returned to the contributor without any tax implications and the CESG is returned to the Government.

If the RESP has been in place for at least 10 years, the income can be:

-withdrawn and subject to tax at the contributor’s marginal tax rate plus an additional 20% penalty tax

-given to designated educational institution

-transferred (up to a max. of $50,000) to the contributor’s RRSP or his or her spouse’s RRSP if there is RRSP contribution room available.

We all know that the cost of living increases over time. As overall prices rise , so do educational expenses at post-secondary institutions. 

The key to providing for your child’s future is starting early and selecting the right investment.

For more information about which option is best for you and your family, please feel free to contact me.

Related posts:

1. How TFSA can pick up where RESP leave off.
2. Choose the right savings vehicle for your dreams.
3. New Baby and How Life Changes
4. Inexpensive Summer Fun With Kids

Tags: Canadian Government, Children, Debt, GESG, RESP, Term Life Insurance, The cost of raising a child, university fee, Will

This entry was posted by FP on Tuesday, March 24th, 2009 at 11:56 PM and is filed under Financial Budget, Financial Knowledge, RESP, Raising Children. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.