Back to School Savings.
For many people, August can be a bittersweet month. We get some of Toronto's best weather and have events like The Exhibition to look forward to. On the other hand, for those with young children, August can also mean the return of school.
This month's newsletter focuses on preparing for the cost of education. The ability to pay for post-secondary schooling is a priority for many families, and we have gathered some informative articles to help with the financial planning aspect.
If you have any questions about starting an RESP, please feel free to give us a call.
Peter, Richard, Claudio and Joanna
Four Great Reasons to invest in Registered Education Savings Plans (RESPs)
by Jim Yih - July 2013, retirehappy.ca
Registered Education Savings Plans (RESPs) remain the best way to save for your kids education. Past changes to RESPs at both the federal and the provincial level, make RESPs a more attractive option than ever for saving towards your children's education. Here's four great reasons to invest in RESPs:
Previously, contributors would get the Canada Education Savings Grant (CESG), which is 20% for every dollar contributed up to a maximum of $2000 of contribution per year. Effective since 2007, the government increased the CESG to a maximum of $2500 per year of contribution per year. This means the government will contribute $500 of CESG based on a maximum $2500 contribution. In my case, I have four children which means I can contribute as much as $10,000 for all four kids and the government would put in $2000 for a total contribution of $12,000. The maximum CESG that each child can get in a lifetime is $7200. That means I can contribute the maximum ($2500) for fourteen and a half years to maximize the grant money from the government.
Catching up on previous years contributions
If you have not made contributions to the Registered Education Savings Plans in previous years, you are allowed to do some catch up. The government allows you to contribute a maximum of $5000 per year per child and qualify for the CESG on the entire contribution. In other words, you can only catch up one year at a time.
For example, my youngest son Brandon was born in 2008. If I had not made RESP contributions for him in the past, I could contribute a total of $15,000 into the RESP for Brandon but I would only be eligible for $1000 of CESG. I would be better off contributing $5000 per year for the next 3 years and be eligible to get $3000 in CESGs for the same $15,000 contribution.
No annual maximum contribution.
Although the maximum you can contribute to the RESP and still qualify for the CESG is $5000, you can contribute as much as $50,000 lump sum. However, in doing so, you waive your future CESGs. In other words, if I contributed $50,000 for my youngest son Brandon, I would get the $1000 CESG but that's it. No future CESGs would be available. On one hand, I would get tax deferred compounding for Jason for the next 20 years but I would lose $6200 of CESG from the government. I think I would opt to invest the $50,000 into a non-RRSP investment into tax efficient investments and stream $5000 per year into the RESPs to get the CESG grant money.
Alberta Centennial Education Savings Plan (ACES).
For Alberta only, the government will contribute $500 into an RESP for children born or adopted by an Alberta resident beginning in 2005. The Alberta government will contribute an additional $100 for children when they turn 8, 11 and 14. In my case, I have three of the four kids that were born 2005 and later which means I qualify for $1000 from the Alberta government. Although my oldest, Robbie was born prior to 2005, he will still get the $100 when he turns 8, 11, and 14. All you have to do is open up an RESP and contribute something to the plan to qualify. This grant money and earnings is transferable among siblings.
So there you have four great reasons to start contributing to Registered Education Savings Plans. Anyone like grandparents, uncles and aunts can contribute to a child's RESP but remember these limits discuss are for each child. Make sure there is some communication with the parents if you want to contribute to the RESPs.
View original article here.
A Costly Matter!
by The Perspective, Summer 2013
If you are about to become a parent you will soon learn what other parents already know - that children are expensive! And, as is the case with boomerang kids, sometimes they are an expense that comes back. However, the expenses associated with our children are an expense that we can live with. According to a recent TD Bank study, one-in-five boomers (a person who was born in the years after World War 11 between 1946 and 1964) admit they would put their own financial security at risk to help their children.
So how much is the cost associated with raising a child?
Unfortunately, from a Canadian perspective, there does not seem to be as much quantifiable data on this subject as there is in the US. The US Department of Agriculture provides an annual report on the cost of child rearing until the age of 18, and last year that average number was $235,000 until the age of 18. That number is up $210,000 from 1960 when the cost to raise a child from birth until the age of 18 was just over $25,000. Of course once inflation is factored in $25,000, 50 plus years later looks a lot more like over $200,000.
Some costs to consider include maternity leave and the lost wages due to time away from work, child care, food, clothing and shelter, as well as necessities such as strollers, cribs and for teenagers let's not forget iPhones and iPads.
Some strategies that parents can take to ease the financial burden include applying for some of the following programs:
Universal child care benefit (UCCB) - this program provides parents with a taxable benefit of 100/month/child under the age of six. As this is a taxable benefit it should be claimed by the lower income earning spouse. Enrolment for the UCCB is processed through the Canada child benefits application.
Canada child tax benefit (CCTB) - this program provides a tax-free monthly payment that is paid to eligible families to help them with the cost of raising children under age 18. Associated programs that fall under the CCTB include the National child benefit supplement and the Child disability benefit.
Child tax credit - this is a federal tax credit of $2,191 for each child under 18 which works out to a tax savings of around $329 per child.
Child care deduction - this is a deduction, as opposed to a tax credit, and as a result lowers the taxable income of the parent with the lower income, who may claim up to $7,000 in expenses for each child under the age of seven and $4,000 for children age seven to 16. Parents should be aware that eligible child care expenses include the cost of summer camps.
Tuition, education and textbook amounts - These tax student credits (if unused by the student) may be transferred to a parent, grandparent, spouse or common law partner up to a maximum of $5,000.
Transit passes cost - Public transit passes used by children who were younger than 19 at the end of the tax year can be claimed by either parent (including common-law partners).
Talk about budgeting and saving - It's never too early or too late to start talking to your children about the importance of budgeting and saving. In fact there are even a few savings strategies that parents may want to consider beyond contributing to a Registered Education Savings Plan such as establishing an investment plan in the name of your child with the proceeds received from the CCTB and UCCB as any investment income earned is not attributed back to the parents.
The joys of being the diligent parent never end!
Teaching Your Kids About Personal Finance
by Peter Briger - August 2013, financialhighway.com
In today's consumer-driven, media-saturated society, it isn't always easy to instil a sense of financial responsibility in children. Yet doing so will be one of the best gifts a parent can give a child, and one of the best investments in his or her long-term financial and personal success. Experts in psychology, child development, and personal finance cite a number of attitudes, activities, and techniques that any parent can use to strengthen a child's ability to deal with dollars and cents in positive and constructive ways.
Show, Don't Tell
It's important for kids to see their parents setting a good example. Let them see you balancing a checkbook, paying bills online, tracking expenditures, even compiling your tax returns. Children who see the adults in their lives being financially responsible and attentive to obligations will find it easier to incorporate healthy attitudes and practices into their own lives. As soon as your children can count, let them become familiar with money and help you add up purchases or expenditures.
And Also Tell
Verbalize your feelings about money, saving, investing, and providing a secure financial future for your family. Allow children to see the connections between your emphasis on financial planning and the lifestyle, travel opportunities, and education that your investments have provided for them. Additionally, help them grasp the differences between what they may want and what they truly need. All of these interactions will lay the groundwork for their ability to set reasonable limits on their future spending.
Use Everyday Experiences
A trip to the grocery store is often a child's first exposure to the world of money and finance. Use this as an opportunity to plan economical meals together create lists of needed items, and look for money-saving coupons. While at the store, show your child how to compare quality and price, and how to determine the real per-unit cost of any item. Since about one-third of a typical family's income goes toward food and household products, demonstrating the value of saving in this area can be a regular lesson in basic economics.
Use Stories to Make Things Real
There are plenty of enjoyable children's picture books with money and finance as themes. Judith Viorst's Alexander, Who Used to Be Rich Last Sunday and If You Made a Million by David M. Schwartz are two examples of well-written, engaging stories that also have a financial lesson in them. By using your local library or bookstore, you and your child can discover many more titles to both entertain and educate you about personal finance and financial responsibility.
Set Achievable Goals
Help your child to prepare for his or her own future by learning to set practical and appropriate goals, whether that involves schoolwork, athletics, or simply saving up to buy a special toy or game.
Do Long-Range Planning Together
Talk with your child about your planning for his or her educational future. United States savings bonds are still an excellent way to provide for a college education, and in many cases, the interest on bonds is tax free if used for tuition. Consider asking relatives to deemphasize other presents and give savings bonds as gifts at graduations and other special occasions.
Emphasize Growing Wealth over Spending
Talk to your children regularly about the benefits of savings and investments. Discuss the concept of interest income, and even think about paying them interest on money they earn themselves. Start a savings account for your child in his or her own name, and encourage pride in adding to it on a frequent basis. Take your child with you to the bank and allow him or her to see the process of saving and spending from beginning to end. If your child has a special purchase in mind, don't dampen the enthusiasm by discouraging withdrawing money to buy it. Simply help your child keep everything in perspective by showing how funds used for one purpose will no longer earn interest and cannot be used again.
Keep Your Receipts!
Encourage your child's understanding of record-keeping by going over online accounts together and holding on to receipts for a time in order to verify purchases. Allow your child to help you set up a record-keeping system and to take notes on future planned purchases.
Research Your Purchases Together
Especially as your child grows older, allow him or her to make some financial decisions independently, even if they turn out to be poor ones. Learning from mistakes can be a strong motivator for later carefulness and planning. Do your own online research together to compare potential purchases and discuss the trade-offs that your child will make by opting to buy one item over another.
Deconstruct the Media
Help your child evaluate the truthfulness and usefulness of media advertising. Teaching your child to become a skeptical consumer of advertising will provide him or her with a valuable perspective, particularly during the traditionally high-consumption teen years, when peer pressure to buy popular branded items reaches a peak. Discuss the difference between media hype and the true value of a consumer item with your child, as well as the techniques advertisers use to encourage spending.
Limit Credit Cards
As your child approaches college, you may be considering offering him or her a credit card. Just be aware that many students use credit cards to obtain cash advances rather than solely for emergencies. Talk with your child about credit card interest rates on discretionary purchases and about the possibility of taking on a part-time job if necessary or desirable. And remember that if you have already shown your child examples of responsible credit card usage on your part, he or she will be more ready to demonstrate responsibility as a young adult. A five-year-old's trip to a family restaurant can spark a meaningful discussion about credit, spending, and interest that an 18-year-old may remember.
View original article here.
Worldsource Financial Management Inc.
272 Lawrence Avenue West, Suite 203
Toronto, Ontario M5M 4M1
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