Congratulations! You are a proud parent! This might be the most exciting time of your life, and quite frankly, it’s probably one of the scariest times too! This precious life that you have is looking to you for the teaching, guidance and love that will take them to adulthood. Oh, and provide the financial support to make their dreams come true.
Here’s the dilemna: you have no idea where their dreams will take them! How can you plan for something that is 15, 20 or more years in the future? What will they need help with? Education? Their first home? Starting a business? How much will they need? What will stuff cost in that unknown future?
The truth is you can only do as much as you are able. That might sound simplistic, however it is true. The saving that you do for your child is based on many different factors, the most important of which is staying within your abilities, and making the most of that. Too many families have taken an overambitious approach to saving for their children only to realize that it becomes beyond their reach at some point.
Whatever approach you take to creating future financial wealth for your child, please remember that you can always increase the amount you are saving in the future. It’s a wiser choice to start with a plan that you can truly afford. If your family financial situation changes for the better down the road, you can always increase the amount of saving you are doing. Certain investment plans won’t allow you to decrease the amount that you are setting aside, and missing payments is not acceptable, so prudent planning is necessary.
What do you really want to save for? If it’s for education, and you are fairly positive that a post-secondary education is what you want to prepare for, then the RESP is a viable option. Please remember that is it a federal government regulated plan, and that means that there are rules as to how, where, and when the money that you saved is utilized. However, there are grants available which help to make your investment grow faster. That means that you have the savings power of not only your own contribution, but what the government will add to that.
Like any investment, there are risks involved. In 2008 when the stock market fell over 30%, there were many families counting on the RESP to fund their children’s schooling who came to the realization that not only was their growth gone, but a good part of their initial investment was gone as well.
The RESP does have an overall investment cap that states you can never put in more than $50,000. The government grant is limited to a max of $7,200 over the life of the plan. That means that even with amazing investment returns, there are real limits as to how much growth there can be in this plan.
As I work with insurance investments, namely segregated funds, there are guarantees built into the plan to safeguard against losing all of the investment contributions in your RESP plan.
A great option for creating future wealth for your child is a participating whole life insurance plan. Your plan will receive an annual tax free dividend from the insurance company for life. The growth within the plan can be used for absolutely anything, anywhere, anytime. This type of insurance plan grows not only in the usable equity in the plan, but it also grows in the amount of life insurance. This might be the only life insurance plan that your child will ever need. Ever. For life. And by the way, you can put basically as much into this plan as you wish. Therefore, you can see some pretty incredible growth over your child’s lifetime, and the dividends do grow tax free every year.
So what is the best choice? This is where we have a conversation. What do you really want to save for? How much time is there before your child may need these savings? How much will your budget allow you to contribute? How much do you know/ understand about investing? What is your risk tolerance for investments? Do you like rules, or do you prefer a plan that has no limitations as to how it’s used?
The bottom line is this; choose an approach you feel comfortable with, an investment amount that works for your situation, and a length of time that allows your investment to grow for it’s intended purpose. Then commit to making the plan work to it’s full potential. Your child is dreaming about their future, and you can help them get there.