If you are considering starting a family, you likely already know the costs can add up quickly. It reportedly costs an estimated $10,000-$15,000 per year to raise a child in Canada, which is why financial planning in preparation for your family is extremely important. Instilling love, safety, and security are the best ways to support your new family, and getting an early start on planning can only make the transition from non-parent to parent easier.
What Things Should I Consider before Starting a Family?
With children comes joy, happiness, and love. Children can offer fulfillment to hopeful would-be parents all around the world, but they also come with a brand-new list of financial expenses. Proper financial planning can help your new family start life on the right foot.
Maternity Employment Insurance
Maternity leave is an essential aspect of pregnancy and giving birth. In Canada, maternity leave is covered with pay for up to 15 weeks, and women can decide to take that time either during pregnancy or after giving birth. After the 15 weeks have passed, parents can take between an additional 40 weeks to 18 months of extended parental leave. During this time, an employer cannot fire the new parents, and hopefully, the employer will offer a top-up of additional financial coverage during the extended leave. However, this is not required by law. Luckily, maternity employment insurance can help get you and your new family by.
Maternity employment insurance is meant to be a replacement of 55% of the new parent’s weekly earnings, usually maxing out around $573 per week. Those who choose to take extended parental leave will be eligible for 33% of their income, maxing out at $343 per week. Typically, each parent is allowed their own paternity leave benefits, which can be taken simultaneously or one right after the other. This would depend on the couples’ employer, their potential top-up options, and their maternity leave insurance benefits.
Life Insurance
Life insurance offers security and protection to millions of Canadians and can be beneficial to everyone, but it can be especially vital to new parents. Life insurance provides a financial safety net to your spouse and dependents in the unfortunate case of your sudden passing. Children depend on and need financial support from their parents. If you are unable to provide financial support due to your death, your life insurance policy will pay out a predetermined amount to your beneficiaries. Your life insurance payout can be used to pay your mortgage and bills, cover your funeral expenses, and help provide for your family’s future.
Life insurance policies are best purchased when you are young because they are far more affordable then, at typically around $40 a month. The cost of life insurance policies go up significantly as you age, or if your health risks get heightened. In order to gauge your general bill of health, life insurance policies usually require a complete physical and blood panel before offering your policy at a specific rate. Some insurance companies will provide life insurance policies without a physical examination, but they are the most expensive type of policy on the market.
Baby Preparation Costs
Bringing your baby home from the hospital for the first time is a magical (if not a little intimidating) moment. However, before you bring your newest family member home, your house and nursery need to be baby-ready. Before having children, most people do not know the extensive list of baby things new parents need, let alone their cost. Luckily, many new parents hold baby showers to hopefully receive gifts from friends and family, but any gifts they do not receive, they will likely have to purchase on their own. Some standard new baby purchases include:
- Car seat
- Crib
- Stroller
- High chair
- Diapers
- Formula/bottles
- Swing
- Baby monitor
- Baby safety precautions
- Infant/child care
The list can really add up, and while your child will not be in a car seat or daycare forever, other expenses will pop up as they grow. Some common expenses for older children include:
- School registrations and tuition
- School supplies
- Braces
- Extracurricular activities
- Clothing
- Personal care
- Uninsured health care
- Summer camps
While retail items for your child are a necessity, they are also where you can shop around and save some money. Many essential items can be bought second-hand, excluding car seats, which should always be purchased new. However, clothing, toys, books, sports equipment, and many electronics can be bought used. Shopping sales and using coupon codes can also make a reasonable price difference at checkout. In addition, any items your children outgrow can be resold, as long as it is still in good condition.
Childcare Costs
Daycare costs are something that can vary widely based on what area you reside in; however, professional and licensed daycare centers can cost around $2K each month in metropolitan areas. Many families rely on unlicensed, home-run daycares as a more affordable solution to their childcare needs. Another alternative is asking family members to help with discounted childcare. If you and your partner know you will need daycare services and are looking into the licensed center route, do not wait too long before joining a waiting list. Spots are limited, and it is best to get a jump on things by adding your child to the list as soon as they are born, or earlier if possible.
Always check reviews when choosing a daycare center, whether it be licensed or home-run. The majority of childcare centers will have reviews posted online. If you are interested in an unlicensed daycare center, ask around to other parents whose children attend daycare at that home. Also, you may be able to find reviews for home-run daycares through social media pages.
Many families are opting for the stay-at-home parent solution due to costly daycare prices. While not possible for some families, those who can take advantage of this opportunity often do so in order to offset childcare costs and spend quality time with their kids. Several Canadian provinces, including Quebec, have already implemented lower childcare measures. In addition, the Canadian federal $10-a-day daycare arrangement will help to lower childcare costs in coming years.
Registered Education Savings Plan (RESP)
While starting a Registered Education Savings Plan is not mandatory in Canada, it is highly recommended. The RESP is a savings plan you should consider utilizing if you are raising a family. As you put money into your child’s RESP, the Canadian Educational Savings Grant will match your donation by 20% on the first $2,500 you donate. If you were to donate at least $2,500 per year, your child’s RESP would receive a free $500 a year. If you start the RESP as soon as your child is born, you could receive a maximum of $7,200 over 17 years.
Unfortunately, your RESP contributions are not tax-deductible, and the gains will be taxable under your child when they withdraw. However, children do not typically have a high income at the point of withdrawal, meaning profits are often untaxed as well.
Low-income families may be eligible for a higher matched rate from the Canadian Education Savings Grant. They can also potentially get up to $2K to start their child’s RESP account via the Canada Learning Bond. The Canada Learning Bond is free federal money and, if you qualify for it, is without tax and needs no additional contributions.
Canadian Child Benefit
Raising a child can be financially daunting, but the Canadian Child Benefit can assist in relieving some monetary stress. The Canadian Child Benefit offers $6,639 per year per child under the age of six. Once your child is older than six, the Canadian Child Benefit will provide $5,602 per child per year until they reach the age of 17. This benefit was explicitly written for lower to middle-income families so they may have their incomes freed up for other expenses they may be struggling with. However, you may not qualify for the federal benefit if your income is in a higher tax bracket.
Final Thoughts
Choosing to start a family is a monumental decision that should require comprehensive financial planning. Preparation for your family building can start on a steady financial foundation. Getting your monetary assets and insurance policies in line before your child is born can help set your family on the right track for success, and the best way to do so is with the help of an experienced insurance agent. The licensed insurance experts at Hometown Life Insurance prioritize their clients’ best interests and will work tirelessly to get you an ideal insurance policy. With years of market knowledge and expertise under their belts, the agents at Hometown Life Insurance can help you navigate the waters of life insurance, showing you the pros and cons of different policies and which ones may fit your family and budget best.
To learn more about financial family planning, contact the licensed professionals at Hometown Life Insurance at 289-606-0103. Our experts will be happy to answer any questions you may have.
