Business

Having a child requires a financial plan

(Special) – The arrival of the Duke and Duchess of Sussex’s new baby Archie a few months ago was big news in the Royal Family and around the world.

For Canadian couples and families, having a new child may be as exciting as it was for the Royals, but that’s probably where the similarities end. While the Royals don’t have to worry too much about the costs and financial implications of raising a child, for most families in Canada, the arrival of a new child can have a significant impact on the household budget.

According to some recent studies, the cost of raising a child from birth to the age of 18 can surpass $250,000, which doesn’t even include the cost of a college or university education.

Couples who have decided to take the plunge into parenthood would be well advised to take some time, sit down and attempt to calculate expected costs of their new arrival to be sure they aren’t blindsided by the coming changes to their finances and lifestyle.

“It’s a pretty overwhelming number — it’s meant to inform people about what they can expect, not to scare them,” Christine Van Cauwenberghe, vice-president of tax and wealth planning with IG Wealth Management, said in an interview. “For example, the cost of child care for just one child can run $1,700 a month. Parents really need to think about what they are taking on. It’s a good idea to sit down with a financial adviser to see exactly how a child will impact your financial plan.”

Van Cauwenberghe suggests new parents plan for worst case scenarios. This would involve ensuring they have a proper will in place, have an appointed guardian, and sufficient insurance to cover the family in the event of your sudden death

Parents should sit down with the guardian, make sure they are comfortable taking on that responsibility, share their philosophies on such things as religion, activities and education and generally give the potential guardian general guidelines on how they would like their child to be brought up.

As well, do an estate and insurance needs analysis to ensure you have sufficient coverage to protect the family in the event of your sudden death.

Education planning is another important area where early planning and saving can pay big dividends in the future.

A post-secondary education can cost anywhere from $50,000 to $100,000 for a four-year degree program.

Many financial advisers will recommend parents start saving early for their children’s education through either or both of Registered Educational Savings Plans (RESPs) and the Tax Free Savings Accounts (TFSAs) and by taking advantage of other student aid programs, scholarships and bursaries.

Through an RESP, parents, grandparents and even friends can contribute money any time up to a lifetime total of $50,000 per child. These contributions are not tax deductible, but any investment income and capital gains can be generated and grow within an RESP through investments such as stocks, bonds, mutual funds, and guaranteed investment certificates until the children are ready to pay for their post-secondary education.

In addition to tax-deferred growth, the federal government will automatically contribute a Canada Education Savings Grant of 20 per cent of what you put in up to a lifetime maximum of $7,200.

The children only pay income tax on the gains earned by the plan and the grants as funds are withdrawn, which usually is low because the income of most post-secondary students is very limited.

Another good option is the TFSA where contributions can grow and be withdrawn tax-free and the money then can be put back into the fund in the following year.

Having children is a wonderful gift, but it does come with a cost. “Make sure you understand your financial plan and how the cost of bringing up and educating children will affect it and your future retirement,” Van Cauwenberghe said.

Talbot Boggs is a Toronto-based business communications professional who has worked with national news organizations, magazines and corporations in the finance, retail, manufacturing and other industrial sectors.

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Talbot Boggs , The Canadian Press