Being married to an accountant, we are always discussing topics like money. My husband and I grew up understanding the value of money differently. When we were pregnant with our daughter we had many lengthy discussions about money. It ranged from teaching her about the value of money to saving up for college. We also discussed adding the expenses of raising a child to our budget. We came up with some great and creative ways to teach our children about the value of the dollar. Our desire was to teach her how money works in the real world while saving for her future. I hope it will help you too. Here are 5 great ways to save money for your child’s future.
1. Open up an education fund for your child
Opening up an education fund for your child is one of the best things you can do for your child. Especially if you want them to pursue an education after high school. Unfortunately, colleges are expensive, not only tuition but books and other expenses that can come with post-secondary education.
Here in Canada, we call an education fund, an RESP (registered education savings plan). Open an RESP for your child sooner than later and start contributing when you can. Of course, having a planned monthly contribution ensures that you are saving and you don’t have to think about it.
Also once you’re a parent, you will be receiving a child benefit, in Canada called the Canadian Child Benefit (CCB). Where you receive money each month, based on your family’s annual income. This money is to help families with children with whatever they need. You should receive a certain amount of money for each child. If you’re able to sustain your family financially without the use of this benefit you should use it to contribute to your child’s RESP.
My friend suggested this and it is brilliant. The government is giving you free money to help you raise your child. If you contribute it to your child’s RESP the government will match a certain percentage of it. Contribute enough each year to receive the maximum government contribution. Let the government pay for a big portion if not all of your child’s education.
2. Save the child benefit
Continuing on from the first point. Likely you won’t be using all of the benefits (in a year) if you chose to contribute to your child’s RESP to get the maximum government matching. Save the remaining amount in a savings account and invest it. If you have access to a Tax-Free Savings Account, invest it so you can earn interest that is tax-free.
This money is yours to do as you see fit for your family. We decided to save the child benefit for her future since it is something extra we are receiving. These first 2 tips are great ways to save money for your child’s future.
3. Tax your child’s earnings
I know, this sounds terrible but hear me out. Do you remember the scene in FRIENDS, when Rachel gets her first paycheck and she looks at her stub and says, “Who’s FICA? Why is he getting all my money?” Well, she had no idea what taxes were.
I really believe that parents should teach their children about how money works in the real world. Taxing your child’s “earnings” is a great way to save money for your child’s future and teach them about money.
My husband and I felt taking “taxes” off our child’s earnings would help with that. For example, taxing money made from additional work around the house is fair. It’s a great opportunity to teach them about taxes. Explaining to them that everyone pays taxes and where these tax dollars go.
If you’re curious, we would “tax” our children and set it aside for them in an account. This is in no way to rip off our kid for a few cents of their hard-earned dollar. It is to teach them the value of earning money and that our society functions this way.
I wouldn’t “tax” allowances though. This is money they are getting just because they are my child. However, anything where they have to earn, through “work”, I would “tax”. Such as things beyond their normal household chores.
4. Charge them interest
I remember when I was a kid, I would ask my parents for an advance on my allowance. Sometimes I would ask if I could “borrow” money for something I really wanted. I think we all know when children “borrow” money they really mean just give them more money.
However, this is a perfect way to teach your child about interest from borrowed money. It will teach them about borrowing money from a credit card or money advances. This is will help them understand and manage borrowing larger sums such as financing a car or a mortgage.
If they ask to “borrow” money, make sure you make it clear that it is borrowed money. That this amount should be paid back. It might be taken out of their next “pay” when they do “work”. This will introduce to the concept like the price of borrowing money (like 10 cents or a percentage). It is also a great way to encourage them to wait and save to buy what it is they want.
Good money sense is important as a huge population of people in the world are living in debt. Many are living paycheck to paycheck and a large portion of that is due to debt from borrowed money.
5. Charge your child rent
I know it sounds like I am asking you to take money from your kid. However, charging our children rent teaches them a valuable lesson about money and managing their money.
My mother in law told me that her father used to charge her rent. She was working and still living at home. It doesn’t have to be a lot. This teaches them that there are fixed expenses that need to be paid; these expenses have to consider before any other spending can be done.
So many young adults nowadays have a hard time managing their fixed, non-negotiable expenses. This can lead to borrowing money and starting their journey down having debt.
If the household needs the extra money, the rent is also a great way to help with that. However, what I loved about my mother in law’s situation was that her father actually saved all her rent money. When she was ready to move out and live on her own, he gave all the money back to help her get started. Charging your child rent teaches them a great lesson in managing their money. It can also be a means to help them in the future.
There you have it, 5 great ways to save money for your child’s future. It seems like we as parents are taking a lot of their money. However, our goal is to return all that money we take in as “tax”, “interest” and “rent”. All the while teaching them the basics of managing money, understanding taxes, and interest and expenses.
Teaching our children is the best way we can prepare them for life without us, which will come one day.
For more on mom-life check out my favorite posts below!
- 5 Things I learned from my first week as a mom
- 4 Things I learned from my first year as a mom
- My 6 favorite racially diverse books for kids
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