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Embarking on the journey of having a baby or adopting a child is one of life's most exciting adventures. The experience is filled with unforgettable "firsts," both joyful and challenging. While nothing can truly prepare you for these moments, you can prepare for the financial aspects.
Understanding the Costs
While it's tough to pinpoint the exact cost of raising a child from birth to high school graduation, estimates suggest it’s about $293,000 from birth to age 17 (an average of $17,235 per year) for a two-parent, middle-income family with two children, according to the first national estimate in over a decade. Despite these daunting numbers, careful planning can ease the financial burden. There are numerous benefits and tools available to support new parents in Canada.
Government Benefits
Several government benefits can help manage the costs, including the Canada Child Benefit (CCB). The CCB provides a tax-free, annual payment until your child turns 18. It's not a refund for expenses, but rather a flexible fund based on your family’s net income and your child's age. You can estimate your CCB using an online calculator.
Saving for Your Child’s Future
Budgeting for necessities such as clothing, food, daycare, and activities is essential. However, finding funds to invest in your child’s future is also crucial. Even small, regular contributions to savings or investment plans can significantly impact. Starting early maximizes your allowable contributions.
Registered Education Savings Plan (RESP)
Designed to cover post-secondary education costs, an RESP allows contributions to grow tax-free and includes government grants like the Canada Education Savings Grant (CESG) and the Canada Learning Bond (CLB).
Tax-Free Savings Account (TFSA)
Maximize your TFSA contributions to supplement savings for your child’s future. Investment returns in a TFSA are not taxed, even upon withdrawal, making it a versatile fund for various needs. Encourage your child to open their own TFSA once they turn 18.
Life Insurance
Purchasing life insurance for a newborn offers low-cost, comprehensive coverage. These funds can later help cover post-secondary education or other expenses. Make sure you, as a parent, are covered with a life insurance plan as well. Term life insurance is an affordable option.
Critical Illness Insurance
A critical illness insurance policy for kids provides long-term coverage, lasting until they turn 75. This ensures protection from a young age through much of their life.
Start Early and Involve Your Child
Begin saving early to maximize growth potential. Involve your children in family budgeting and financial planning as they grow. This practice helps them understand the costs of significant life expenses and teaches the value of saving, hard work, and making sound financial decisions.
Planning ahead can make the financial challenges of raising a child more manageable, allowing you to focus on the joys and adventures of parenthood.