You don’t have to be rich to give your kids a good start in life
The Walton Financial Group in Barrie has srategies to help get your kids started on a solid finaancial plan
Financial planning for children is an important part of parenting :
If you want your children to be financial powerhouses as adults , start them on investing early . Teach them that investing isn’t a sprint . It’s a marathon . Teach then about the power of compound interest . Help them understand that time in the market is the ultimate superpower .
Here are some foundational tools for helping your kids financially ;
RESP
The most common saving tool for minor children is a Registered Education Savings Plan. An RESP is a tax deferred savings plan used to fund post-secondary education costs like trade school, college or university tuition and other expenses.
There are no tax deductions when a parent makes a RESP contribution, but the government provides a Canada Education Savings Grant (CESG) of 20% on contributions of up to $2,500 per year, per child (each named as a beneficiary in the plan), resulting in up to $500 in grants annually. If you’re unable to contribute some years, you can also catch up on contributions in future years, again receiving up to $500 in grants for each year you hold the RESP.
RESP accounts can also be opened by grandparents for their children’s children. This can be a good indirect way to help your own kids, by helping to alleviate the burden of saving for their children’s post-secondary costs on their own.
TFSA
You can contribute to a Tax Free Savings Account (TFSA) for a child or grandchild. However, TFSA contribution room does not begin to accumulate until they are 18. Beginning in the year a child turns 18, a full year of TFSA room is available. There are no tax implications for a parent or grandparent who contributes.
TFSA contributions can be very flexible for a young person. Unlike contribution room in a registered retirement savings plan (RRSP), which is tied to earned income from employment or self-employment, there are no such requirements for TFSA contribution limits, which are set each year by the government (it’s $6,000 for the year 2020). TFSA withdrawals can also be taken at any time—tax-free—and used for education, a home down payment, or even to make future RRSP contributions, amongst other purposes.
An important consideration is that a TFSA belongs to the account holder. As a result, someone who contributes to a TFSA for a child or grandchild is effectively gifting them that money.
INSURANCE
Insurance is an often overlooked way to help your kids financially.
In what’s probably the most common approach, a parent buys life insurance policies for their young children; I meet many adult clients whose parents did this for them years ago. Generally, the policies are relatively small and provide a fraction of a child’s future life insurance needs once they start a family of their own.
Buying insurance for adult children may be a better strategy. It could be 10 or 20 years after a child goes out on their own before they have a family and financial dependents, and so need life insurance to protect their income and ensure loved ones are taken care of. Some people never have any dependents like a spouse or kids.
But virtually everyone is someday dependent on themselves, and their own income, to cover their living expenses. Young people in their 20s and 30s are often woefully under insured against the risk of disability and critical illness. If a child became disabled due to accident, injury, or illness, and was unable to work, having an insurance policy to protect them financially could be very beneficial.
Call the Walton Financial Group in Barrie Ontario to arrange for a consultation with a financial planner who can help guide you in making decisions about way to help children with a solid financial plan
