Finances and Your New Baby
Bringing a new baby into your home is an exciting but anxiety-inducing time. There is so much change, especially if it is the first baby. There are also lots of financial implications. In retrospect, I’m not sure how we managed to accomplish it when we had our children, all of whom are now adults. Our oldest child was born in Japan, our second child was born in Canada, our third child was born in the United States, and our fourth child was born in Japan, but in a different part of the country. Furthermore, only at the time of the birth of our last child were we in a decent income-earning situation. Somehow, we muddled through, though.
Below are a few financial ideas that you might consider when anticipating a child coming into your life.
Women who are away from work because they’re pregnant or have recently given birth are eligible for Employment Insurance. Also eligible are parents who are away from work to care for their newborn or newly adopted child. The first is known as a maternity benefit. The second is a parental benefit.
Eligible persons can receive 55% of their earnings up to a maximum of $638 per week. Maternity benefits last a maximum of 15 weeks. Parental benefits are a little more complex. Below is a table from the Government of Canada that provides an overview of these benefits.
Maternity benefits are routinely followed by parental benefits; both can be applied for at once.
It falls to the parents whether, or how, they want to share these benefits. One proposal I have heard is to elect to take the standard parental benefits, in other words, receiving more money upfront, but then choosing, if desired, to take the extended parental leave. This would mean not receiving any of the benefits past the prescribed maximum weeks for the standard parental benefit.
Note that EI benefits are taxable.
Benefits from Employer
Employers can offer supplemental payments to maternity or parental benefits. When properly arranged for, these supplemental benefits have no impact on EI benefits. Two important conditions must be met.
- When the payment is added to the employee’s EI weekly benefits, the combined amount does not exceed the employee’s normal weekly earnings from employment— 100% of gross salary.
- The payment is not used to reduce other accumulated employment benefits such as banked sick leave, vacation leave credits, or severance pay
Read more here.
It should be noted that not every employer offers these Supplemental Unemployment Benefits (aka SUBs).
Save for Maternity and Parental Leave
Unless your employer offers a SUB program, you will want to put away some extra savings when your only income will come from EI. If you earn a gross income of $52,000 per year, that works out to $1,000 per week. If you receive maternity and parental benefits of $638 per week, you have to make up the difference of $362. Part of your income while you are working may already be deducted for a pension plan or group RRSP or perhaps you are already putting money away in a TFSA. In that case, the gap may not be as wide as you thought, although you may need to acknowledge that your usual pattern of savings while working will have to be diverted to your current expenses while you are on leave.
Anticipate New Expenses
Children cost money. There’s extra food, although perhaps not so much in the first few months if breastfeeding is an option. There’s clothing, a stroller, a car seat, etc. Some of these things can be passed on from within a circle of other young parents. This is where “social capital” becomes valuable. However, some items like car seats, by regulation, are not allowed to be sold or given away unless they meet current standards.
The Canada Child Benefit
A relatively recent federal program, which has been responsible for lifting many children out of poverty, is the Canada Child Benefit (CCB). The CCB is a tax-free monthly payment intended to help with the cost of raising children under age 18. This program is income-tested using a figure referred to as adjusted family net income. Provinces may also offer additional benefits.
Use Your Registered Retirement Savings Plan Strategically
As mentioned above, the CCB uses “adjusted family net income” to determine a family’s eligibility for the benefit. A household can lower net income by contributing to RRSPs, which reduces taxable income. If you are in a lower income bracket, you may think it makes sense to contribute to your TFSA rather than your RRSP, but the benefit of a maximized CCB is not to be underestimated. To learn more about this strategy, I recommend you read this blog post by my fellow advice-only financial planner and owner of the financial planning firm PlanEasy, Owen Winkelmolen.
Register Your Child’s Birth and Apply for a Birth Certificate
Each province does things its way, but no matter where you live, you must register your child’s birth. If you are anticipating the birth of a baby, check the following links for the province or territory where your child will be born:
Apply for Your Child’s Health Card
This again depends on provincial policy, but if your child was born in a hospital, staff will likely provide you with the appropriate guidance.
Apply for Your Child’s Social Insurance Number
Depending on the province of birth, this can be at least partially completed alongside the birth registration process. I remember that I did not apply for a S.I.N. for myself until I was 16 and wanted to get a part-time job. These days, having a S.I.N. can allow you to access certain benefits for your child earlier on.
Open a Registered Education Savings Plan
Concerning the above paragraph, opening a Registered Education Savings Plan (RESP) requires that the beneficiary child have a S.I.N. If you want to save for your child’s post-secondary education, getting that done as soon as possible gives you the best opportunity for your savings to grow until needed.
In the past, so-called scholarship trust dealers have marketed their versions of group RESPs to parents of newborns. All I can say is, don’t do it. And if you are already in a group RESP, be careful about their rules. You can read more about RESPs in my blog posts here and here.
Investigate Child Care Options
This has been a challenging cost for many parents. Sometimes, parents have crunched the numbers and decided that one parent should stay at home to care for their child(ren) full-time rather than spend money on childcare services.
These costs are very much in flux in the past year. The federal government has instituted a plan to arrange for subsidized child care across Canada, similar to the program that has been in Quebec for several years. To my knowledge, the last province to strike a deal with the federal government was Ontario, in March 2022. If you are in Ontario, you may be interested in this article.
Apply for/Update your Life Insurance and Disability Insurance
A couple without children, and not much in the way of assets or liabilities (debts) like a house and corresponding mortgage, may not be particularly concerned about life insurance before a child arrives. Once a child arrives, however, responsibilities to provide the financial resources for your dependent’s care in the case of your early death or long-term disability greatly increase.
Does Life Insurance for Your Child Make Sense?
I am of two minds on this particular topic. On the one hand, I would argue that life insurance is about replacing income lost due to the death of a provider. Children do not provide income. They cost money (willingly spent, of course). On the other hand, the cost is relatively low, and insurance bought for a child that allows for renewals and regular increases in the death benefit without providing new proof of eligibility may be beneficial if the child experiences an illness that would disqualify them from eligibility for life insurance later on in life. On the balance of probabilities, I would probably argue against it, but since I was diagnosed with kidney disease at age 25, which consequently made me ineligible for life insurance other than through my employer, I see the argument in favour of purchasing it.
Make/Update Your Will
Now that you have a child, if you have not yet made a will, you need to get to it. A will when you are in your child-rearing years is, like life insurance, all about providing for your dependents if you die earlier than expected. Among other things, you need to consider who you would want to be your child(ren)’s guardian.
Your will can also create a testamentary trust, providing for money from your assets to help support your children. You will need to name a trustee responsible for those funds who may or may not be the guardian.
The third category of person to consider would come into play if you have an RESP. Assuming you and your spouse are joint subscribers and both of you die simultaneously or nearly so, it is wise to name someone as a successor subscriber. Failure to do so means it would form part of the estate, be subject to probate, and be distributed according to the terms of the will. However, if you name a successor subscriber, it carries on after your death under the control of the new subscriber and remains exempt from taxes and probate. Having said that, any subscriber of an RESP has considerable discretion to manage the RESP, including collapsing it and using it as they see fit. You, therefore, need to make sure the person you appoint as your successor is trustworthy. Alternatively, you may want to have a separate testamentary trust for the RESP. A trustee would also need to be trustworthy, but the legal obligations of trusteeship are much more stringent than they are for a successor subscriber.
These are not the only concerns that arise from becoming a parent, but they will get you started on the path. In case you are wondering why I wrote about this topic, well, it’s personal. A few weeks ago I wrote a blog post in which I indicated I would be taking a break to attend the wedding of my wife’s and my second daughter to her now-husband. Now, a mere three weeks later, our eldest daughter gave birth to her first child and our first grandchild. Thus, the inspiration. It has been an exciting beginning to our summer.
This is the 155th blog post for Russ Writes, first published on 2022-07-11.
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.
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