One of the best ways to save money for your children’s future is to start as soon as you can — it quickly adds up.
Becoming a parent brings a lot of changes into your life — some joyful, some challenging — but all of them rewarding. One major area of your life that changes with parenthood is your finances. We’ve all heard it before — children are expensive! And while they might be expensive when they’re young, it’s also important to start saving for their future as soon as possible and make the contributions you can make, while still juggling day-to-day life.
Life is a balancing act so to help you out, here are some direct and indirect ways to financially prepare for your children’s future:
Registered Education Savings Plan (RESP)
Before your child was even born, you likely heard all about RESPs. There are pamphlets advertising their benefits all over doctors’ offices and pre-natal clinics — and for good reason. Post-secondary education will be one of the biggest expenses your child will have and with the ever-rising cost of college and university, saving for education cannot begin soon enough. In 1998, the Canadian government introduced RESPs — a savings plan that the government would contribute to with yearly grants based on your contributions to the account. Essentially, the sooner you begin saving money in your child’s RESP, the sooner the government will begin to make their contributions too.
Tax-Free Savings Account (TFSA)
When the government announced the Tax-Free Savings Account (TFSA), perhaps it seemed a little too good to be true. Yet, TFSAs are truly exceptional in that your investment income and account withdrawals are completely tax-free. Opening an account in your child’s name and making contributions over their lifetime can really add up. Then, your child can make use of the funds for any major life milestones, such as a down payment on their first home or purchasing a car. The benefit of a TFSA is that it offers versatility and does not restrict your savings for only post-secondary education.
The topic of life insurance can be an uncomfortable one to consider — no one wants to think about the end of their life. However, as a parent, purchasing life insurance is one of the smartest things you can do for your children. When you pass away, your children may be left with considerable financial burdens, including your end-of-life arrangements. At such an emotional time, having extra money from your life insurance policy can ease the difficult time your children will face by giving them one less thing to worry about.
Taking Care of Your Own Finances
One of the most cost efficient (free!) ways to financially provide for your children’s future is by taking care of your own finances while you are still around. Not only does having healthy finances improve your own quality of life, but it ensures that your kids will not be left to resolve your debts. Furthermore, by keeping your finances in order, a good example is set for your children, which in-turn, improves their financial future. Managing your finances now is really a win-win for your entire family.
Being Open with Your Children About Money
Another free and effective strategy to develop a solid foundation for your children’s future is to talk openly with them about money as soon as they are old enough to start understanding the concept of money (usually around 4 years of age). If you discuss how you make money, what you use your money to purchase and that families must work within a monthly budget, you can help your child learn to value money and in turn, learn to use it wisely.
While it might not be possible to use all of the suggestions above, thinking ahead and choosing a strategy to prepare for your kids’ future is the first step to setting them up for financial success.