# Investing for Children



## JohnnyD (Apr 10, 2014)

Is it better to open up an in trust account for kids or is it better to invest in your TFSA and then transfer the shares to them once they turn 18? I am just debating what to do with their birthday money, etc. Thanks in advance to your replies.


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## Just a Guy (Mar 27, 2012)

From what I've seen, it's rarely good to give a young adult a large sum of money. You're probably better off to give them their birthday money to do with as they like. If they blow it all on stupid things and don't have anything for stuff they want/need, it's better for them to learn that when young rather than when they can get into real trouble.


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## carverman (Nov 8, 2010)

Just a Guy said:


> From what I've seen, it's rarely good to give a young adult a large sum of money. You're probably better off to give them their birthday money to do with as they like. If they blow it all on stupid things and don't have anything for stuff they want/need, it's better for them to learn that when young rather than when they can get into real trouble.


I dunno. The RESP is still a good investment for their education.

The gov't kicks in a percentage for each dollar you invest. You don't get any tax breaks on the money that you invest in the RESP in your child's name, but they won't pay any taxes (well hardly any) if they use that money to further their education.
If they turn out not the way you expect them to and drop out of school, you can always get your money back by collapsing the plan, but not the gov't contribution to the RESP.


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## cashinstinct (Apr 4, 2009)

What about RESP for education? You could use a portion of birthday money for RESP.

Could be an occasion to teach about finances.

Example: they get $100 from aunt, you tell them:
- $20 saved in your "Piggy bank" for future expenses
- $10 that can be spent today / soon
- $70 that goes for long-term education (RESP)


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## kcowan (Jul 1, 2010)

My first grand-daughter caused me to rethink Christmas and Birthday gifts. I live 2300 miles away and have no idea what she needs. So I said I would make the maximum RESP contribution into hers each year. Last year she got $10000 for first year university. Each year it will be another $10k for 3 more years. 4 more GCs to go.

The interesting thing is that no one else was contributing, not her parents, her other 3 grandparents.


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## JohnnyD (Apr 10, 2014)

I forgot to mention that the kids already have a RESP setup. I have maxed theirs each thus far although it is getting harder to do that each year. 

I too am worried about handing out a large sum and having them blow it on something frivolous as soon as they get it. My hope is that they develop some good financial sense by then. I don't want to be taxed for something I won't benefit from. 

I am interested in learning more about what others have done. Thanks for all the feedback.


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## Woz (Sep 5, 2013)

If you have the TFSA room then that’s going to be the better option, tax free vs taxed in your kids hands is always going to be better. 

I'd also be interested in hearing others' experience with in-trust accounts.

I’ve considered opening an informal trust and investing in primarily capital gains producing investments, but have been scared off a bit. From what I can tell the CRA doesn’t recognize informal trusts and therefore treats them as a formal trust, which I take it means I would need to file a T3 for the trust. That’s usually when I decide it’s not worth the hassle. Maybe someday though.


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## carverman (Nov 8, 2010)

kcowan said:


> My first grand-daughter caused me to rethink Christmas and Birthday gifts. I live 2300 miles away and have no idea what she needs. So I said I would make the maximum RESP contribution into hers each year. Last year she got $10000 for first year university. Each year it will be another $10k for 3 more years. 4 more GCs to go.
> 
> The interesting thing is that no one else was contributing, not her parents, her other 3 grandparents.


Smart planning on your part for her.
Her ability to find a decent paying career in today's competitive job environment is assured with the help from that RESP you opened up for her.
You would hope that for the other 4 GC, someone else would take advantage of the RSEP savings too.


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## carverman (Nov 8, 2010)

Woz said:


> If you have the TFSA room then that’s going to be the better option, tax free vs taxed in your kids hands is always going to be better.


The problem with using a TFSA is the low interest growth if you are just using it as savings. There may be other options for higher interest in the TFSA, but that adds complexity.

A GIC is another way, invested up to 5 years in a GIC "ladder scheme" that increments the interest rate, the longer the term. So you could take $10,000 and invest it in a 5 year ladder type GIC
the only disadvantage is that you would have to declare the interest earned by each GIC on your taxes each year, but the child can get the principal after 5 years + the interest that has been paid on the $10k GIC. 

If the child is not ready for further education at that point, you also have the option of reinvesting the principle amount + the interest if you want it invested for another 1-5 year term. 

Most college or university students pay very little tax or none at all depending on their situation. There is also some advantages of doing it this way where the child files their own tax return for school expenses each year while attending higher education, such as grants from the gov'ts,that may apply. 

The important thing is to take advantage of the financial help that is available.


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## kcowan (Jul 1, 2010)

carverman said:


> You would hope that for the other 4 GC, someone else would take advantage of the RESP savings too.


The last two have different inlaws so could be. They are also much younger so I think the $10k will have to be increased. Although the $50k limit per child would also have to be raised. The last GC would graduate in 2032.


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## lonewolf (Jun 12, 2012)

Education bubble is mostly debt with little champagne. For the most part further education is destroying the retirements of grand parents & making students slaves to debt


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## Rusty O'Toole (Feb 1, 2012)

The saddest thing is they told all those young people if they didn't get a degree they were doomed to flipping burgers . So they got the degree. And now they are trying to get a job flipping burgers , $60,000 in debt from student loans.


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## Plugging Along (Jan 3, 2011)

JohnnyD said:


> Is it better to open up an in trust account for kids or is it better to invest in your TFSA and then transfer the shares to them once they turn 18? I am just debating what to do with their birthday money, etc. Thanks in advance to your replies.


Our kids get a lot in birthday and Christmas money from family, We have done the informal trust. No problems yet, and I don't anticipate any in the future. I am following the footsteps of my older siblings and their kids. All of my nieces and nephews had formal and informal trusts, and so far all used them as intended for school. 

Yes, it is possible that the kids blow their money when they are older, but there is a good chance they don't if they are coached and mentored when they are younger.

When my kids get any of their money - gifts, allowance, etc. they split it up into spend, save, give. The Save is for their future, and we suggest they put aside the largest percentage, that amount gets put into their In trust account. I figure the money is meant for them, and they can blow it now, or blow it later. I hope to influence them at a young enough age, as they have been told they are expected to pay for part of their university.


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## carverman (Nov 8, 2010)

Rusty O'Toole said:


> The saddest thing is they told all those young people if they didn't get a degree they were doomed to flipping burgers . So they got the degree. And now they are trying to get a job flipping burgers , $60,000 in debt from student loans.


It depends on what degree they get. If they have a degree in archaeological philosophy, for sure they will end up flipping burgers. 

You need a degree in what the current job market is looking for.


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## kcowan (Jul 1, 2010)

The first GC has chosen Biomedical Engineering. I hope it works out for her! One year in.


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## fraser (May 15, 2010)

It depends. As a former GM in the IT industry, our managers hired for various functions. For entry level we were looking for people who had a degree...did not have to be business. We wanted people who demonstrated that they could finish what they started, ie university or college, and had an aptitude to learn and to work hard. Relevant experience was good, but other factors were just as important. If they had the basics, we would train them and move them forward in the company and/or in the industry.

Unfortunately, there are not as many firms hiring directly from university these days. Especially now that we have been in the grips of a business recession, reduction on hiring, for at least nine months. Despite the happy picture that Joe Oliver and Stephen Harper paint for us.


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## lonewolf (Jun 12, 2012)

kcowan said:


> My first grand-daughter caused me to rethink Christmas and Birthday gifts. I live 2300 miles away and have no idea what she needs. So I said I would make the maximum RESP contribution into hers each year. Last year she got $10000 for first year university. Each year it will be another $10k for 3 more years. 4 more GCs to go.
> 
> The interesting thing is that no one else was contributing, not her parents, her other 3 grandparents.


 Not a good thing, I think kids need to take responsibility, The Grand parents should be the last ones paying the piper. If the parents contributed they could talk over a budget with the kids, They could say well this year we do not have enough money for X & X while still being able to put money into an RESP & our retirement fund how can we make cut backs or earn more money to be able to pay for everything ? Since most spend more money going to school then the amount of money they will get back from going to school kids should you be saving money for school or perhaps we should try to figure out a way so going to school is worth it.


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## kcowan (Jul 1, 2010)

lonewolf said:


> Not a good thing, I think kids need to take responsibility


I agree. They have all worked every summer to pay their way. But I am trying to avoid any student debt, which I believe to be a killer for kids starting out.


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## gibor365 (Apr 1, 2011)

> Unfortunately, there are not as many firms hiring directly from university these days.


 This is why I like coop programs (where my son is studying)... In 2 working semesters he already worked in CIBC and TD at pretty qualified work.... Hopefully when he graduates , it will be easier for him to find good job in financial industry....


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## gibor365 (Apr 1, 2011)

What do you think about being a teacher? My 14 y.o. likes this profession , but everybody (include my wife) is telling that it's almost impossible to get teacher job, esp if you don't have connections (and we don't)... It's strange considering fact that every year 300K immigrants coming to Canada....


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