In Money

Why my child will be saving for his own education fund even before he turns one

I already wrote a post on why I am NOT saving for my son’s future education but I didn’t mention the most crucial part:

He’s going to start saving (right now before he even turns 1) for his own education.

He’ll have a net worth at 18 that is far greater than I ever had at his age, and it’ll all be thanks to his own income.

How?

Well in Canada we get a lot of monetary benefits for having children, and all of the money that we parents receive because we have a child, will go into his Registered Education Savings Plan (RESP). Here’s the short list of what could apply to him, as we live in Quebec:

  • Canada Child Benefit (CCB) – Monthly amount until he’s 18 (federal)
  • Régie des rentes du Québec Child Assistance – Monthly amount until he’s 18 (provincial)
  • Universal Childcare Benefit – Monthly amount until he is 6 (federal)
  • Quebec Education Savings Initiative – Yearly amount until he is 18 (provincial)
  • Canada Education Savings Grant – Yearly amount until he is 17 (federal)

For low-income families (under $25,000 – $43,000 give or take):

  • National Child Benefit Supplement (included in the CCB)
  • Additional Canada Education Savings Grant (included under the CESG)
  • Canada Learning Bond

Basically a lot of money being thrown his way for being a baby. stock-baby-photo-child

BUT ISN’T THAT MONEY FOR THE PARENTS?

Yeah it is. It’s meant to cover the cost of having a child and to help subsidize Baby Bun’s expenses, but … we don’t really need the money.

We also didn’t have a child to make money.

The way I see it, if we didn’t have him, we wouldn’t have the money… so technically it’s HIS money, not ours

SO WHEN DOES HE START?

ASAP. The best time to get started is in his first year (compounding interest matters!), and every single dollar that comes from any or all of the programs above for him, will go straight into his RESP. We won’t be contributing any of our own money, it’ll all be his.


We’re already collecting cheques for some of the programs above, so that money is ready to be deposited into his account.

My really rough estimate of the entire amounts above if I were to be eligible to collect the absolute maximum for him for ALL the programs?

$125,000… give or take over 18 years*

*not assuming any growth or compounding interest, which is in addition to the $125,000, but then again it’s all based on my income; how much he gets. Yep.

Baby Bun will have a pretty healthy education fund, and that amount should be enough to cover 4 years at university or whatever he decides to do.

If he decides to not go to school at all, we’ll just take the money deposited on his behalf and get taxed on the earnings upon the capital but not on the capital itself (it has already been taxed), and give him the money for what he needs.

It’ll be his money. It’s just that Mommy and Daddy will be the ones helping administer the fund to let it grow over 18 years and to be ready for him.

I DO HAVE A SMALL PROBLEM THOUGH..!

And it’s a good one to have… but I will have too much money to put into his RESP.

Before you suggest putting it into my TFSAs or RRSPs, I am also maxed out on my retirement fund contributions as well, so there’s no room there.

In fact, he should only be contributing about $278 maximum a month or a bit less, to reach the $50,000 lifetime maximum in the RESP in 15 years (this is when I will be able to maximize and get 100% of all the grant money offered).

What do I do with the remaining cash?

I might have to open another account or something that’s separate from this, maybe a margin account under TD Canada Trust, and put it into e-series funds so that I don’t mix his money with mine.

Any Canadian parents have any ideas on how to manage his extra education money?

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Sherry of Save. Spend. Splurge.

Millionaire at 36 after getting out of $60K of student debt in 18 months, a little over a decade earlier, using TheBudgetingTool.com. Since then, I have paid my $600K home in cash (my half was $300K), my $180K casr in cash, worked 50% of my career (taking 1-2 year breaks), and quadrupled my income within 2 years of graduating, going from $65K to $260K with an average lifetime savings rate of 50%. I could retire today if I wanted, but love my work-life balance as a freelancing consultant in STEM (Science, Technology, Engineering, Math). I am all about balance - between time and money, and also enjoying my money. I also post daily on Instagram @saverspender.

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35 Comments

  1. Michelle

    I have only heard of the “Gerber” starter program. I will have to check what the United States has to offer.

    Reply
    1. save. spend. splurge.

      Apparently only if you have a low income, will you get money. See the other comments! 🙂

      Reply
  2. Lila

    That’s wonderful. Baby bun is very lucky. You and your partner sound like very good parents. Whether your little one goes to university or vocational college, I hope he enjoys what he does for a living one day like his parents!

    Reply
    1. save. spend. splurge.

      I hope so too! As long as he is happy and can take care of himself, I’m happy.

      Reply
  3. PF reader

    It’s my understanding that once a child has a SSN they then receive the 5000/annual contribution room for a TFSA.

    I very well could be wrong –it’s not an option most people seek out because they max on RRSPs.

    Reply
    1. save. spend. splurge.

      The TFSA is only available to people aged 18 and older. 🙂 RRSPs are only for people who have an earned income, neither of which applies to Baby Bun.

      Looks like I’ll open a margin account for him.

      Reply
  4. Anne @ Money Propeller

    Holy crap Quebec! He’ll be the richest student EVER if he stays in-province to go to school!
    I know a lot of my friends around here who do the same with the government funds. They figured that they decided to have kids without the money, and it’s free money, so they should just not touch it at all and put it straight to RESPs and whatnot.

    Reply
    1. save. spend. splurge.

      I think he would probably end up staying in Quebec if he wanted to go to school. Go to McGill or something. If he decides to go out of province to another university, I’m OK with that too. He can do whatever he wants with that money.

      Reply
  5. Kate @ Money Propeller

    We are starting to save for our daughter’s future education. When my hubs received a bonus, he made sure to put some money in our kid’s savings.

    Reply
    1. save. spend. splurge.

      Any money that is his, will be his in his RESP. We won’t be buying things like bikes or clothes out of that money, that’s JUST for his education.

      We’ll pay for the toys and clothes on our own dime, not touching his money.

      Reply
  6. the spunky banker.

    I love when parents are proactive in saving for their kids future. I used to work at a bank where the parents would open an account and then “need the money” (for gambling or cigarettes) and they would come take the money out and rarely replace it. I know that when I have kids I will use those people as a lesson in “what not to do.”

    Reply
    1. save. spend. splurge.

      My parents were like that, which is why I am not.

      Reply
  7. GirlinaTrenchcoat

    No advice here, just green eyes of envy for what a good system Canada has compared to the US. Darn it, I should have moved to Quebec instead of California! 😉

    Reply
    1. save. spend. splurge.

      For things like healthcare and childcare, Canada does have it better. We even have a year of maternity leave here, but 3 months in the U.S. is considered very generous O_o

      Reply
  8. ArianaAuburn

    In the US you can get tax credits every year (on the federal level) per child. Depending on which state you live in, you can get assistance per child ONLY if you earn near poverty wages (SNAP Benefits) and if your child has medical conditions that require extensive care but the parents can not afford the treatments (supplemental state health insurance and Medicaid programs). If you earn even a dollar above the state’s poverty level, the benefits get cut. The US is SERIOUSLY behind the curve on taking care of its children due to cash strapped states cutting back on programs to help children. You are SO lucky you live in a province that helps parents take care of their children.

    Reply
    1. save. spend. splurge.

      Not just Quebec, but the rest of Canada provides money too. I’m lucky to live in such a great country.

      The bulk of the money coming to Baby Bun is from Canada. The bonus is from Quebec, but I hadn’t really counted on it until I realized it was available.

      Reply
  9. Naomi @ Rising Net Worth

    First off let me say that Canada is leaps and bounds ahead of the states with this whole initiative! It’s remarkable what your government program you guys have in place for citizens. When I went off to college I don’t have any saved up money from my parent but that made me work even harder to get through my education. I appreciate it more. Way to go Canada!

    Reply
    1. save. spend. splurge.

      Well I should note that Quebec is unusual with their extra child assistance and education assistance payments. Other provinces do not have that, save for Alberta I think.

      On the whole, we do get some nice benefits for having kids, but daycare eats everything if you end up having to pay $1525/month. 🙂

      Reply
  10. Morgaine

    We plan on doing the exact same thing (although we won’t get the lower income boosts). Also any money the kid receives from family for birthdays, etc is going straight into the RESP (until they’re older, maybe give them a bit of that money for fun – don’t want the kid to resent me forever 😉 Its smart to save this way, if the kid decides they don’t want to go to school or drop out (worst case scenerios, of course) at least it was his saved money and not your earned money 🙂

    As for the rest, I was going to say to open a savings account for him at a bank, but I guess it needs to be in trust? I imagine investments would have to be in trust in order to keep them separate from your own funds, for tax purposes.

    Reply
    1. save. spend. splurge.

      Yes I think what I will do is open another account and invest in index funds in his name if I can.

      Reply
  11. SP

    That’s great – he has such good parents! Lucky guy!

    I wonder what my tax implications would be if we had our first kid? There are no direct monthly payments like you get (though that sounds like an interesting approach).

    Reply
    1. save. spend. splurge.

      I hope he thinks so!

      Doesn’t the US have child assistance?

      Reply
      1. SP

        @save. spend. splurge.:

        I don’t think there is a monthly payment for average income people. I could be wrong though. My understanding is they just reduce your overall tax burden, which allows you to withhold less each month, which gives you more money a month. Then there is a WIC program for lower income or babies with special health issues.

        Reply
        1. save. spend. splurge.

          Ohh I see. So those tax savings then go into an education fund if you wish then.

          Reply
  12. Ree Klein

    Here’s another glowing example of why I follow your blog! You made my heart sing when you said:

    “We also didn’t have a child to make money. The way I see it, if we didn’t have him, we wouldn’t have the money… so technically it’s HIS money, not ours.”

    If all parents would think like that, there would be no need for student loans. And, student debt wouldn’t even be a topic of conversation.

    YOU ROCK!!!!

    Reply
    1. save. spend. splurge.

      Aww you’re making me blush!

      It really is just rational, common sense, although I know people who rely on those payments to help pay their mortgage 🙁

      Reply
  13. Retired by 40

    Wow! This is crazy! I am fundamentally against socialized medicine and many programs that Canada has, but quite frankly this sounds awesome! I’m assuming your taxes are quite a bit higher, which quite frankly I wouldn’t mind int he US, if only the government got it’s shit together. At any rate…..maybe we should consider moving to Canada?

    Reply
    1. save. spend. splurge.

      I am a freelancer who takes her salary in dividends.

      A) I control how much I take which controls my tax rate

      B) My dividends are not taxed at a salaried income rate. Essentially I can withdraw about $50K nearly tax free every year if I wanted. Not that I need all that money though.

      You’re right in saying that salaried income tax brackets are higher but they aren’t ridiculous like in France even if they aren’t as low as in FL or TX for instance.

      Reply
  14. debt debs

    Is that him? What a cutie! Wow, you are starting him off right! Good for you. I would invest the extra in his name in an index fund, I guess. Good problem to have.

    Reply
    1. save. spend. splurge.

      No that is not him 🙂 I don’t post pictures of myself or my family.

      Yes I am thinking a separate margin account for index funds should do it.

      Reply
  15. AdinaJ

    Wow! We get $100 per kid. I had no idea it was possible to get more if you’re not in the low-income bracket. Anyway, we also put that money into the kids’ RESP, and once I’m back to work, we will be topping it up a bit more. The one thing I’ve been meaning to do is re-jig the allocation; it’s too conservative right now, I think, and so it’s been missing out on some of the growth we’ve seen in our retirement accounts.
    I also started regular savings accounts for each kid in their own name, keeping relatively small amounts in there (like, under $1,000) from the monetary gifts they get for special occasions from grandparents. That way, when they turn 10 or so, we can start practicing some good money management lessons on their own dime 😉
    Funny thing though. 3 years ago, I was able to open my son’s account in his own name, simply attached as a youth account to our own. Now, for my daughter, they won’t allow that anymore. It has to be an account in my name, in trust for her, until she can sign her own name. Rule change. I thought it was pretty funny.

    Reply
    1. save. spend. splurge.

      You get $100 per kid for the Childcare benefit for those under 6 but there is also the Canada Child Tax Benefit you have to apply for (federal). It is based on your income. Alberta also has a few other programs for kids like in Quebec.

      Reply
  16. Alicia

    Wow. I have heard of the Canadian programs, but not the Quebec ones. Also, I’m totally out of the loop, when did you go back to Quebec? I thought you were in the GTA 🙂

    My parents put my “baby bonus”, etc into an RESP for me, plus enough to get the match, and maybe a little more. That paid for my undergrad, and then some.

    Also, Baby Bun is adorable… what a head of hair!

    Reply
    1. save. spend. splurge.

      Quebec is very generous but apparently the government is slow in paying out said generosity 😉

      That is not Baby Bun 🙂 but he does have a lot of hair IRL

      Reply
    2. save. spend. splurge.

      Oh and to answer your question I just recently moved back 🙂

      Reply

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