Parents always wish the best for their children. Hence, they put in their best efforts possible to provide the facilities to help them build a promising career and a successful life. Money is the biggest asset that will give your child’s the head-start to a happy and deserving life.
To make things easier for you, we have listed down the top money-saving options you (as a parent or guardian) can consider to secure your kid’s future.
1. Buy a Whole Life Insurance for your children
Insurance For Children is one of the safest ways to save money for your child’s future. It can be used to build up funds to meet the child’s post-secondary education while offering them financial security for their future. The best part is that life insurance policies are tax-deferred.
It is to be noted that a Child insurance plan differs from RESP. The former is a private plan, whereas the latter is a government plan where the child can use the saved funds to pursue post-secondary education in Canada. Therefore, the Child Plan is ideally used for all kinds of education programs in Canada or globally.
What is Child Plan ™?
Child Plan ™ Participating Whole Life Insurance can be started by the parents or grandparents, even for 14 days old children. The child receives an annual dividend from the first day of account opening. Parents are not legally required to transfer complete control of the plan to their children or grandchildren until they aren’t ready for it.
Child Plan ™ is an alternative to ensure a future-proof and secure savings plan for kids.
2 .Provide Financial Security To Your Child Through Corporate Dividends
This is a saving option for those who run a business. You may collect the savings in your business account as a corporate dividend. It can be used later to finance the post-secondary education of your child. This is another way to provide financial support to your children with your established company. Choose the right insurance policy for better future of your child.
However, there are a few snags in this option. Children below 18 years don’t have legal rights to provide their consent or sign contracts. In other words, you won’t be able to transfer any shares in the name of your children until they turn 18.
3. Registered Disability Savings Plans
Registered Disability Savings Plan is a savings option for the parents whose children qualify for the DTC (Disability Tax Credit). It is to be noted that the purpose of savings isn’t limited to meeting the education costs. They also come to the rescue in meeting the child’s expenses in the long-term (such as for retirement).
RDSP qualifies for government grants (until 49 years of age).
- For their first contribution, Canadian families with net annual income averaging below $97,069 get $3 on every $1 contributed up to $500.
- Further, every $1 contribution up to $1000 gets them $2.
Resultantly, a $1,500 RDSP contribution helps them earn a matching contribution of around $3,500 from the Canadian government.
- RDSP withdrawals are taxable, but initial contributions are tax-free.
4. Open an Informal Trust Account
An investment account or an informal trust account is a savings account opened in the child’s name. Parents or the grandparents (or the child’s guardian) funnel money into that account until the child turns adult or until needed. The legal ownership of that account is transferred after the beneficiary turns 18. After that, the child can access and use the finances as and when needed.
However, some parents don’t find it safe to opt for this investment mode as the child gets complete control of the bank account with the transfer of possession. As a result, parents can no longer dictate how and where the money has to be used.
5. Registered Education Savings Plan
RESP is a saving option for children. It’s a tax-deferred plan used for funding post-secondary education expenses of the child, including university tuition, trade school, and others.
Though there aren’t any tax deductions on the contributions, the Canadian government provides a 20% Canada Education Savings Grant on contributions valuing up to $2,500 annually for every beneficiary. So a child may get an annual grant of up to $500.
6. Tax-Free Savings Account
The next option for your child or grandchild is to open a Tax Free Savings Account. Contributions are tax-free. There is no minimum income requirement for leveraging the benefits of TFSA. However, the contribution limits are set by the government every year. For example, the annual TFSA limit for 2022 is $6,000.
Funds from TFSA can be withdrawn at any time and used for a child’s education, mortgage payment, future RRSP contributions, and other purposes. Note that the TFSA account belongs to the individual under whose name it is opened (the child or the grandchild). As a result, the monetary contributions made to this account will be considered a gift.
Sounds Financial Management
Besides financial savings, parents should focus on helping their children build sound financial management behaviour. The best way is to present themselves as role models to manage money. It will be beneficial if your children build a good money mindset at a young age. Make them learn the art and rules of optimal use of money.
Teach them various finance-related concepts such as personal finance, delayed gratification, and budgeting. Make your children understand that money is an essential tool needed to survive in the adult world, and they need to handle it responsibly.