A Baby’s First Investment Plan

Welcoming a baby into your family is an exciting milestone to be celebrated! New parents often begin preparing for their babies’ arrival once they see that first positive test - whether it is calling the doctor to make their first appointment, picking paint colours for the nursery or researching what baby products to add to their registry. But have you ever considered creating a financial baby registry?

In this blog, we will discuss different financial baby registry items that could be a great fit for both your family and your financial goals. Remember, every family’s financial situation is unique, and saving will look different for everyone. Whether you are setting money aside or working toward paying off debts for greater financial freedom in the future, you are taking a step in the right direction.

Planning Ahead

If you know that you want to start a family in the future, it is never a bad idea to start saving before you are pregnant. While Manitoba does support new mothers with maternity leave, the paid Employment Insurance (EI) benefits typically only cover 55% of your salary up to a maximum amount. Having a safety net or cushion to fall back on during your maternity leave will help to alleviate financial stress and give you more flexibility. Planning ahead can also help with purchasing higher-ticket baby items or with nursery renovations. There is no magic number you should aim to save for, but setting aside enough to supplement your income for the duration of your maternity leave is a great goal.

Costs to Consider

Welcoming a new family member comes with additional costs to consider - now, in the near future, and throughout your child’s life.

·   Reduced household income - In Manitoba, maternity leave EI benefits usually cover about 33% to 55% of your regular income, for up to 12 to 18 months, depending on the length you choose.

·   Nursery and Furniture/Toy costs – The average parents-to-be will purchase a variety of baby items, including a crib and/or bassinet, a rocking chair and other essential items to prepare the nursery. Other items could include a pack and play, baby proofing items, bouncers, baby swings, toys and more. Many of these items can be purchased secondhand to reduce costs! Another plus for purchasing secondhand items is that they come assembled and ready to use. A huge benefit!

·   Diapers and wipes – The typical baby will use around 2,500 diapers in their first year. At an average cost of $0.25 per diaper, that adds up to $625 per year or roughly $52 per month, depending on what brand you choose.

·   Feeding supplies – No matter what, your baby will need to eat! You may require a breast pump and other breastfeeding accessories, or maybe you will need to purchase formula and bottles. As your child grows, you will need a highchair, baby-safe dishes, and baby food.

·   Car seat and stroller – Many parents will require a car seat and stroller to safely transport their child. These items come in a wide range of options and price points. As the child grows, a booster seat will be needed. It is also good to take note that there is an expiration date for car seats and booster seats.

·   Childcare - If you’re planning to return to work after your maternity leave, it’s a smart idea to start thinking about daycare sooner rather than later. Not only is childcare an expense to budget for, but many daycares also have long waitlists—so the sooner you start exploring your options, the better.

·   Future education costs – Another decision to be made is whether your child will attend public or private school. Both options come with costs. While public schools don’t charge tuition, you’ll still want to budget for things like school supplies, field trips, sports, and other extracurricular activities that can add up over time.

·   Unexpected Costs – While it isn’t the hope, it is possible you may require a longer stay in the hospital if there are some unexpected health issues.

Not everyone is able to start saving before pregnancy—and that’s completely okay. Whether you begin during pregnancy or after your baby arrives, what matters most is that you start when you can. It is never too late to begin building a financial foundation for your growing family. Now, let’s talk about how to start saving.

How to Save

There are plenty of accounts that can be used to put money aside, each with its own list of benefits and purpose.

High Interest Savings Account

A High Interest Savings Account (HISA) is a flexible option to start saving with. It yields some interest while your contributions remain fluid, meaning you can access your funds at any time. You have the option to set up automatic deposits that align with your payday, or you can contribute sporadically when you have extra funds. There is also no monthly maintenance fee with this account. A HISA can be a great tool for saving in advance of becoming pregnant to help with the initial costs of parenthood, or for continuing to build your savings once your baby arrives.

Term Deposits & Guaranteed Income Certificates

Term deposits and Guaranteed Income Certificates (GIC) can be set up with your child as the trustee or beneficiary. While there is a minimum balance required, these types of accounts allow you to make deposits which are held for a fixed term - usually 2-5 years - earning a reasonable rate of return. Although funds are locked in during the term, all deposits are 100% guaranteed with no limit through the Deposit Guarantee Corporation of Manitoba.

Registered Education Savings Plan

A Registered Education Savings Plan (RESP) is a great government-sponsored savings tool designed to help parents save for their child’s education. When you contribute money, it grows tax-free and can be eligible for government grants and bonds. Once your child is born and has a Social Insurance Number, you can open a RESP with them as the beneficiary. If you have more children in the future, you can add them to the same RESP with a family plan.

One highlight is that there are no annual contribution limits; however, there is a lifetime maximum of $50,000. Monetary gifts you receive for your baby can be easily added to the RESP.

A major advantage of a RESP is that the Canadian Education Savings Grant (CESG) matches 20% of the first $2,500 contributed annually, up to $500 per year or up to $7,200 per beneficiary over the lifetime of the plan!

RESPs can also be invested in mutual funds or GICs, or kept on their own, depending on what you’re comfortable with.

You can begin withdrawing from your RESP once your child, the beneficiary, is enrolled in a qualifying post-secondary institution. Your child can make withdrawals called Educational Assistance Payments (EAPs), which include investment growth and any government grants. Your child will pay tax on the EAP withdrawals; however, they will likely be in a lower tax bracket as a student. You can also make withdrawals from the original contribution without tax, but you cannot withdraw the accrued interest or the government grants. Those must be used for the beneficiary’s education or be returned if unused.

A RESP can stay open for up to 35 years. If your child chooses not to attend post-secondary schooling, you can either transfer the funds into a different RESP, move up to $50,000 to your own Registered Retirement Savings Plan (RRSP) (provided you have the available contribution room), or withdraw the funds. You will need to keep in mind that withdrawals may have potential tax implications and may require you to repay any government grants that were received.

A RESP is a great way to save for your children(s) post-secondary education. While there aren’t any tax breaks like there are with an RRSP, you do not pay tax on the funds until they are withdrawn. At that point, it will likely be your child who pays the tax - often at a lower rate, since students generally have little to no income.

A financial baby registry is a smart, modern idea for parents who want to prioritize long-term goals over short-term items. Babies grow out of clothes, toys, and gear quickly, while a financial gift grows with them. This type of registry also gives family and friends the convenience of allowing them to contribute to a financial goal, rather than guessing what items you need, what size to buy, or what colour scheme you have chosen.

Ready to create your own financial baby registry? Let’s work together to put a plan in place for your family’s future! Contact us today to get started!

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