Lesley-Anne Scorgie
May 11, 2020
Careful spending can allow children to thrive without compromising finances
Families continue to grow despite the pandemic. But with continued financial uncertainty, it's prudent for parents to plan for kid costs as carefully, and with as much flexibility, as possible. Here's how to prepare financially.
Don't overdo it on the start-up costs for a new baby
Preparing for the baby's arrival is exciting, and this is where many parents overspend. There are a few critical items to purchase beforehand: a car seat and stroller to transport the baby home from the hospital; somewhere safe that the baby can sleep (crib and/or bassinet are most common); diapers and changing supplies; formula if you are not breastfeeding, a pump if you are; limited seasonally appropriate clothes (don't buy too much until you know the size of your baby); and swaddles and/or receiving blankets. Hold off on the rest! You might not know what you need until the baby is here.
If you're of a frugal and environmentally conscious nature like I am, most of these items can be purchased second-hand (or even gotten as hand-me-downs). If new is for you, waiting for sales is the best way to save. At a minimum, you'll need to budget $750 to get started. This includes the fees you will pay to register the baby in your province (try to do this online the week of the birth).
Ongoing essential expenses for baby will increase over time
As the baby grows, your costs will, too. You'll want to account for food, vitamins, clothes, and larger car seats (you can't keep an infant in a bucket seat forever). My recommendation is that in the first year of life, families allocate a minimum of $300 per month toward these costs. Once the child is registered in child care (assuming this is viable once the pandemic ends), monthly costs will increase dramatically; I recommend budgeting a minimum of $1,500 per month (costs will vary widely depending on the style of child care you employ - day homes, daycares, nannies and so on). Once your child is school-aged, your child care costs will drop, but other expenses for food and activities, for example, will increase.
Mind the activity fees
Most families will save a bundle this summer because camps and summer programs won't operate due to COVID-19. But when sports registrations, music lessons, and the like hopefully begin again in the fall, consider capping your spending. The most effective way is to focus on just one or two activities. For children under the age of five, parents should budget an annual minimum of $250 for activities. Beyond that age, the costs can increase dramatically, but I recommend budgeting a minimum of $500 annually until age 12, and $750 from 12 until 18. Note that many programs in the community are free or low-cost; there are a plethora of grants for families that can't afford activity fees.
Prioritize RESP contributions, too
The future cost of your child's education is massive - over $100,000 for a baby born in the past 12 months. Good planning, however, will ensure you can afford to help your child with these expenses.
Contributing anything is good, versus nothing! Still, to optimize the government's matching of 20 per cent on the first $2,500 contributed annually to a Registered Education Savings Plan, you'll need to squirrel away about $200 per month per child. The free money is provided through the Canadian Education Savings Grant (CESG). Every child qualifies for a total lifetime CESG contribution of $7,200. (The grant money 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. Parents with lower income (especially relevant since COVID-19 has hit) can apply for another grant called the Canada Learning Bond, which is up to $2,000 in additional grant money. To get started, you need to have your child's SIN number handy.
I know budgets are tight at the moment, but, if you can dial down spending on non-essentials (toys, fancy clothes and expensive activities; just look how much you're saving this summer!), you can probably afford to contribute something to your child's RESP.
Working and saving is good for your teen and your finances
When it's time for your child to get a part-time job, I highly recommend having them contribute to some kind of savings plan. Perhaps it's for university, or maybe to help pay for their swimming lessons. This tactic will help teach your teen to manage their bank account and learn to save up.
For me, the biggest financial learning since becoming a mom is that if I focus my spending on his health, safety, and education - the most important priorities for my child, not the most expensive - he thrives.
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This article was written by Lesley-Anne Scorgie Contributing Columnist from The Toronto Star and was legally licensed by AdvisorStream through the NewsCred publisher network.
