Kids and Money
Q. I’m two months pregnant now. When will my baby move?
Truly Dad Humor
A. With any luck, right after he finishes college.
You can hope that is only a joke, but when you first have kids, is when you understand the least about the financial ramifications this might have on your life (both immediately and in the long term).
As my regular readers know, I have been ranting about RESPs and the rules behind them, but when my kids were born, the RESP didn’t even exist. The way to save for your kid’s education was either buy into one of those bizarre savings programs where you sent them your Baby Bonus cheques and if your kid went to school, the firm paid for their education (but if they didn’t go, they kept your money). Luckily, things have changed a little, but I am sure there are still folks out there using this kind of program.
For folks who are having children now, I guess the advice I can think of (though not viewing it as the only advice or the best advice) would be to read and learn about some of the ideas for caring for your children financially.
- Are you in debt? If you are, you need to have a plan to get out of debt in a timely fashion. If your child is just born and you plan on buying a house and such, maybe a goal would be to have your house paid off before your kids get to University. It was a goal I had (that I did not succeed in accomplishing), but living Debt-Free as soon as possible is a Primary Goal when planning for kids.
- Don’t create debt, thinking you have plenty of time to pay it off before your kids start costing a lot more. I can assure you that when you are paying for diapers and formula, you wonder how you can afford that, but when you get to age 18 and have to pay for Tuition and such, you are in a whole different Universe when it comes to spending.
- Get your kids a Social Insurance Number as soon as they are born, they will need it if you are going to create RESPs,RDSPs or other savings vehicles of the same type.
- When people start asking,“What can you use for the baby?” Don’t go frivolous. Choose things that will lower your costs, or better yet, be mercenary and ask them for money. This does not work with close friends but can work with family (although you will get a bad reputation in your family for being a money-grubbing jerk).
- Decide on which of the following models you want to follow:
- Create savings vehicles for your kid’s futures, if you can. If you don’t have RRSPs, you aren’t likely to set up RESPs, but if you can figure out a plan to save money for your kids future.
- Decide that the best thing you can do for your kids is teach them the value of a dollar, and how life really works, and don’t put any money aside for them. This plan assumes that you push your kids to start earning their own money as fast as they can, and that the kids manage this money carefully. There is nothing wrong with expecting your older kids to pull their own weight financially.
- Remember that Kids and Money are two of the top stressors for any relationship, and since you can never control kids, you can try to have better control of your Finances at least.
Just some ideas that crossed my mind, given I am effectively dealing with both ends of this spectrum, with two kids in University, but another one in Kindergarten. I don’t think I have learned enough to say that with my youngest child, I am going to do better but I will try not to make the same mistakes I did with my older kids.
Any other advice for new parents out there?
BCM,
Great advice for new parents about getting out of debt asap or setting financial goals (ie. pay of home before child enters university).
The conventional ways of saving for your children’s education through RESP’s and even RRSP’s have many drawbacks.
-RRSP and RESP are not investments in themselves, they are merely accounts which offer some tax sheltered advantages. You are still at the mercy of an unpredictable stock market and/or the absurd mutual fund management fees that eat away at your return every year.
-RESP’s are after-tax investments and if your child chooses not to continue their education beyond high school, the government will take back all the money they contributed to your plan, currently up to $7,200.
First and foremost is that you are still left with the issue of choosing what are you investing the money in?
I’m not a believer in the conventional ways we have been conditioned to believe about saving and accumulating wealth for any purpose. There is an option available for this purpose that blows the doors off of these traditional alternatives. A tax sheltered, guaranteed, and predictable way to save for your child’s education.
I’m having my first child (a girl) in exactly 5 weeks. It’s what i’ll do for her, and it’s what i do to save and invest money for myself. I welcome you to my site for more information. Not sure where you are or if i may help you myself, but i am willing to share my strategy with you.
All the best!
Tareq
I don’t have kids myself, but observing others I suggest:
– Live close to grandparents, free babysitting is great
– It’s not all negative, you’ll likely spend less on going out and entertainment, since you won’t have time
Good points, free babysitting is never free however.
Kids are a wonderful thing, just be prepared financially.