By iA Private Wealth, September 7, 2021
Having a child is an exciting time in life. Before the baby arrives, it’s useful to think about your finances, since raising a child can be both incredibly rewarding and very expensive.
While each family is different and costs vary, expect to budget roughly $10,000 to $15,000 a year until your child turns 18 – and then the potential for post-secondary education will add to this cost. Aside from expenses related to food, clothing, personal care, toys, activities, etc., your daycare/babysitting costs largely depend on where you live and how many hours of supervised care your child will require.
Funding your family addition
Clearly, the more money you can put away, the better your financial situation will be when baby enters the picture. You don’t have to do it all on your own, however. Family and friends might be able to help with gifts, babysitting and hand-me-downs, plus you may qualify for government support.
Parents who are away from work to look after their newborn or newly adopted child may receive up to 55% of their earnings in standard Employment Insurance (EI) benefits, to a current weekly maximum of $595. As the chart below illustrates, parents can share the benefits. The eligible period for benefits may last from 55 weeks to 69 weeks (although ‘extended’ benefits beyond 55 weeks provide less support).
|Maternity (for the person giving birth)
||up to 15 weeks
||up to $595
Maternity benefits can be followed by parental benefits. You can apply for both at once.
||up to 40 weeks, but one parent cannot receive more than 35 weeks of standard benefits
||up to $595
||up to 69 weeks, but one parent cannot receive more than 61 weeks of extended benefits
||up to $357
Source: Government of Canada
Canada Child Benefit (CCB)
In addition to EI benefits, your family may qualify for the CCB. Payments are based on your adjusted family net income (AFNI) for the previous tax year. For the 2021 benefit period (July 2021 to June 2022), if your family’s AFNI is below $32,028, you qualify for the maximum regular CCB of $6,833 per year for children under six years old, and $5,765 annually for children between six and 17 years old. The maximum benefit gradually decreases for AFNIs above $32,028.
Given the pandemic’s impact on many families, there’s also a special 2021 CCB of $300 per quarter for children under six years old, if the AFNI is below $120,000.
Registered Education Savings Plan (RESP)
The cost of post-secondary education continues to rise. It’s good to consider an RESP, which is a savings and investing program designed to cover some of these costs. Currently, the lifetime RESP contribution limit is $50,000 per student (beneficiary). You may invest in many types of securities, from mutual funds and stocks to bonds and GICs – and the investment growth compounds, tax deferred, until the RESP beneficiary begins withdrawing assets.
As an incentive to save, the federal government offers the Canadian Education Savings Grant that matches up to 20% of your contributions, to an annual maximum of $500 and lifetime limit of $7,200.
Each province and territory has some form of student grant or loan, so it’s worthwhile to look into programs available in your area. Talk to your Investment Advisor for more details about how RESP contributions and withdrawals work.
Other things to consider
- Review your insurance coverage when preparing to have children. You may want to upgrade your life, disability and critical illness insurance plans to reflect your family addition(s). Also, if you’re covered under a group insurance plan, your children may qualify for certain medical and dental care needs.
- Update your will as your family grows, so you can include your children as estate beneficiaries. You may also use your will to make physical and financial care arrangements for your children in the event that they’re still minors when you (or both parents) pass away.
iA Private Wealth can help you financially prepare for your new arrival. Start by contacting your local iA Private Wealth Investment Advisor today.