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Financial planning tips

June 16, 2017

Long-term money strategies for new parents

Day-to-day savings tactics are a good start. Now add these 2 long-term strategies to help your kids save for school and become good money managers.

In the 1st part of our 2-part series on money tips for new parents, we looked at 5 everyday things you can do to save money in your baby’s early years.

Today, we’re diving into 2 longer-term strategies that could save you thousands – and put your child on a path to a brighter financial future, too.

Take advantage of free money for tuition

With all the costs that come with a new baby, plus the ongoing project of putting cash away for your own retirement and maybe a down payment on a home, saving for college or university may seem like a pipe dream.

But take heart, because even if you can save just a little bit at a time in your child’s early years, it will pay off later on – particularly if you take advantage of a government-sponsored savings plan that magnifies the cash you tuck away.

It’s called a registered education savings plan (RESP), and a great way to think of it is as an umbrella that lets your contributions grow tax-deferred, up to a maximum lifetime contribution of $50,000 per child (plus whatever investment growth you can achieve in the plan). And when the RESP finally pays out, the cash is taxed at your future student’s (likely low) rate.

The best part? The Canada Education Savings Grant (CESG), which matches 20% of the first $2,500 you contribute to your child’s RESP every year (for a CESG of up to $500 annually) until the year your child turns 17, up to a lifetime max of $7,200 in CESG per child.

Kids from lower-income families get more, with the government matching 30% of the first $500 contributed annually if family net income is between $45,283 and $90,563, and 40% of the first $500 contributed if net income is $45,282 or less.

Setting up an RESP is easy and the plans are flexible. You can contribute any amount in any given year (as long as you stay below the $50,000-per-child lifetime limit) and anyone – not just parents – can contribute. So pass the word to grandparents, godparents and favourite aunts and uncles.

Your child can use RESP payments for anything from books to tuition to living expenses. And she will make the best use of these funds if she’s developed good money habits before she leaves high school. Which brings us to our final tip.

Raise a smart money manager

Kids start to imitate simple actions and facial expressions at around 8 months of age, according to the California Department of Education. By 18 months, they’re copying more complicated actions and repeating simple things they remember from the past.

What does this have to do with money? Only that kids pick up their parents’ behaviour – and sooner than most people think. So setting a good example will go a long way to helping your kids be responsible with money, too.

For Stacey Canonico, a mother of 2 from Omemee, Ontario, it was all about letting her kids directly handle money at a young age – and having fun while they did it. “I’d give them actual change (I’d wash it first),” she says. “I’d let them sort it, count it and try to make $1 using different coins. I even gave them each a certain amount and made them ‘buy’ their toys and snacks for the day. It was hilarious!”

Her experience with granting an allowance was mixed. “My son wanted to start doing chores around the house for a small allowance,” she says. “It was a great way for him to start associating work with money, but it didn’t encourage him to do chores simply to contribute to the family, so we don’t pay him for daily chores anymore, just bigger jobs that require harder work.”

Finally, remember that kids are interested in what you have to say on the subject. The Canadian Foundation for Economic Education surveyed 6,000 Canadians from age 12 to 17 and found that 60% wanted to learn about money at home, from a parent or guardian.

So don’t hesitate to start the conversation.

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