Really want to help your kids understand how it all works?

OK, so you’re getting closer and closer to retirement and maybe it’s a fleeting thought or maybe it’s outright panic but….have you saved enough?  Thinking that most of us do not want to be living in our children’s basements at retirement perhaps we can also help our kids to have the answers earlier in life, rather than have history repeat itself.  The moment your young one comes home and says they have a job take 18% of their income from them in a form of savings.  Open a RRSP for them and make a contribution, annually or monthly if there is enought to work with.  There is no age limit to RRSP contributors.  There may be limits on what types of accounts they have in that they cannot ‘trade’ in the market until they reach the age of majority but they can have a deposit type RRSP at your local bank as long as they have earned income. 

Effective parenting comes from two different directions.  One, you are ‘forcing’ your children to take an interest in learning about investments.  Believe me, if it’s their own money they will soon be asking about mutual funds, stocks, bonds and the like.  The biggest effect, however, is their savings at retirement.  OK, so what 17 year old is thinking about saving for life after 65 especially when there are so many things a young person wants to do NOW!  If you save earlier it is much better than starting later.  For example, a person age 25 saving $5,000 per year will have $1,000,000 at age 65 compared to a 45 year old saving double the amount ($10,000) which will end up with $400,000 at the same age (both based on a consistant 7% return).  That’s a valuable difference.  But wait…there’s more.  Because your impressionable youngster does not have a big marginal tax rate you needn’t deduct the RRSP contribution amount until they start working full-time in their future careers.  You can carry-forward the contribution so that once they start working they can use all or some of all the accumulated contributions when they will receive more of a return for their money.  Also, it may motivate your youngster to contribute to their own RRSP’s if they are aware that they can use those funds towards a down payment for their new house.

Now wouldn’t that be kinda cool?   Down payment for their new house???? A RRSP account and a learning lesson about how to invest……….???   I think so…….

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