Financial pressures on Canadian families seem unrelenting.
The expense of raising children goes up every year in lockstep with your grocery bills, activity fees, gas and housing costs — all of this with one eye on the future and rising tuition fees.
A spike in the unemployment rate doesn’t help. Will I have a job tomorrow? How can I pivot my resume to get past AI screening into the inbox of the right hiring person?
As the political and socio-economic environment swirls around us one thing all parents seem to agree on — we want our kids to be OK.
This has many millennial and GenZ parents upending financial plans, and altruistically planning to fund their kids well into adulthood.
Here are five money strategies they’re putting into action. I’m using all five of these for my two littles.
Building up funds for future education
Registered Education Savings Plans (RESPs) are a top priority.
Parents are making small, consistent contributions so the Canadian Education Savings Grant (CESG) and compounding growth can work over time. Even modest amounts of say $20 a week now can help shield your kids from massive student debt later.
Each year the government matches 20 per cent on the first $2,500 contributed annually to an RESP, to a maximum of $500 a year.
Every child qualifies for a total lifetime CESG contribution of $7,200. The CESG is available up until the end of the calendar year in which the child turns 17.
As the contributor, you have a total lifetime contribution limit into your child’s RESP of $50,000. Families with lower to middle incomes may qualify for an additional CESG.
Are you thinking “they won’t need an education because of AI”? Think again.
The kinds of jobs our kids will step into are ever-changing along with the education required to secure a role in the new economy. And the cost of that that education is only going up.
Investing well to create wealth that can be handed down
Parents are saving and investing not only for themselves, but also for their children.
They also know that the stronger their financial position is, the better they’ll be able to help their kids.
Many are contributing to their own tax-advantaged plans like work pensions, RRSPs and Tax Free Savings Accounts.
Some are opening nonregistered investment accounts earmarked for their children, and setting up permanent life insurance policies with cash values that can be withdrawn or borrowed in the future.
Parents are paying close attention to investment management fees and returns. They’re staying close to their brokers, planners, robo-advisers and doing a lot of research when self-directing their own ETFs.
Saving for housing help
Many parents are rightfully asking, ‘will my child ever be able to afford a home?’
With home ownership slipping out of reach for many young adults, parents are saving to help with their future down payments. Parents with kids over age 18, are even gifting money to help them establish First Home Savings Accounts (FHSAs) and Tax Free Savings Accounts (TFSAs).
The FHSA is a Canadian registered plan that lets first-time homebuyers save up to $8,000 a year, with a lifetime limit of $40,000, toward a home purchase.
Contributions are tax-deductible like an RRSP, and withdrawals for a qualifying first home are tax-free like a TFSA.
The TFSA allows Canadians 18 or older to contribute money each year (with unused room carried forward), and any investment growth or withdrawals are completely tax-free.
The RRSP Home Buyers’ Plan (HBP) can also be used for the down payment, in combination with the FHSA and TFSA.
Funds borrowed from an RRSP through the HBP are limited to $60,000 and must be repaid.
Planning an inheritance without sacrificing your retirement
Wills, life insurance, and estate planning are no longer ‘later problems.’
Parents are engaging advisers to ensure that if something happens, their kids are financially protected.
Importantly, they’re also balancing these plans with their own retirement needs, so their children aren’t left supporting them down the road.
I’m also seeing a really healthy shift in inheritance passing to the next generation while the parents are living, not just after they’ve passed, which can be a huge help for kids today, and in some cases, can assist in tax planning for the parents.
Prioritizing financial literacy
The gift of financial literacy is a centrepiece, even when parents don’t have much money to give.
They’re introducing allowance systems, kid-friendly debit cards, mini-lessons on how to save or spend wisely, and family conversations about budgeting and saving.
The goal is to raise financially confident adults who can manage money wisely once they’re on their own. It’s not meant to scare kids.
In my work with families, I also teach parents how to address their own financial anxiety so they don’t pass down that fear of scarcity to their kids.
