Opening a savings account for your child seems like a no-brainer right? Right. Unless it comes back to bite you.
Is there such a thing as loving your children too much? Absolutely not. But financially, should you choose to allocate more than your budget allows for your child’s future, it could put your child’s present, in jeopardy.
Parents sometimes make the mistake of over preparing for their son or daughters post-secondary life, that they forget there are present day responsibilities to withhold. But there is a way to manage and maintain both, as long as it is done in a way that does not deter your current well-being.
1. Start a piggy bank
This will seem effortless for your child. Anytime he or she runs into any form of spare change, whether it is a dime on the side of the street or a quarters’ change from the convenient store, mandate that they add it to the piggy bank. Establish early on that this piggy bank is not to be opened until a certain age; 18 or 21 are typically the most viable options. After a short period of time, this will become natural to your child, and both yourself as the parent and them as the child, will be absolutely astounded at how much money has been accumulated over the years.
Of course this should not be your only way of saving for their future, but it is a great way to reduce the monthly total that you add to a TFSA or RRSP in their name. At the same time, you will teach your child the importance of saving money; an invaluable and priceless lesson.
2. Open a TFSA before an RRSP
RRSP seems to be the primary option for a lot of parents, as the money is locked down until a major purchase is necessary (i.e. school, home, car, etc.). Additionally, a ‘Registered Retirement Savings Plan’ sounds a tad bit better than a ‘Tax Free Savings Account’. In reality, a TFSA may in fact be your better option.
Aside from the fact that they money will invest on itself, you will not be taxed on it like you would with an RRSP. It speeds up growth and helps out your wallet.