Most grandparents agree – having grandchildren is one of the most fulfilling experiences in life. Loving grandparents undoubtedly want to ensure their grandkids want for nothing, but it can be easy to get carried away. From toys to clothing to school supplies and entertainment, the costs can really add up – and may even impact retirement savings if not managed carefully. If you are a doting grandparent, here are some strategies to help keep your finances on track without compromising your status as World’s Best Grandma or Grandpa.
Buying grandchildren gifts can be rewarding, but it’s a good idea to set limits on spending. Consider setting up an annual budget for presents, taking birthdays and holidays into account. It’s also helpful to find out what grandkids truly want, instead of trying to predict what they will like – this way, money will be spent on gifts they will actually use.
You may want to keep your retirement savings apart from savings that are specific to helping your family. Depending on your situation, there are a couple of options to consider. If not already part of your retirement plan, a Tax-Free Savings Account (TFSA) is a great way to grow savings tax-free, and money can be withdrawn at any time without tax implications. But remember that any withdrawals are not added back to unused contribution room until the following calendar year. Another option is to set up automatic deposits into a non-registered savings account that pays high interest – even a small amount each month can add up pretty quickly.
A Registered Education Savings Plan (RESP) allows family members to contribute money towards the education of a child. The earlier contributions start, the longer the investment will enjoy tax-deferred growth. The RESP may also be eligible for the Canada Education Savings Grant (CESG) – a 20 per cent match on contributions up to $500 annually. It may be worthwhile to coordinate with the child’s parents to eliminate the confusion of multiple accounts while ensuring the plan qualifies for the maximum government benefit.
A permanent life insurance policy in a grandchild’s name can earn cash value that accumulates over time, giving grandchildren access to funds that may help them later in life. A policy for a youngster also has the added benefit of lower rates, allowing them more affordable insurance coverage for life. And when a grandchild becomes of age to access the policy or its cash value, they could use the value in the policy to help pay for their education, or even help purchase a new home.
Consider giving grandchildren experiences rather than just things. Sometimes just spending time with grandchildren is worth all the money in the world. Playing board games or cards, tobogganing at the local hill or baking cookies are just a few fun activities you can share. Even small things like reading a book together can create fond memories. Being a grandparent is a rewarding experience. With a bit of planning and preparation, you can be generous while balancing the costs of your other needs. Speak to your advisor – he or she can help you decide which strategies best meet your goals.
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Sources: Anne Milan, Nadine Laflamme and Irene Wong, “Diversity of grandparents living with their grandchildren,” Insights on Canadian Society, Statistics Canada catalogue no. 75-006-X, last modified November 27, 2015, www150.statcan.gc.ca/n1/pub/75-006-x/2015001/article/14154-eng.htm (accessed June 8, 2018); vanierinstitute.ca/snapshot-grandparents-canada
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