In this post, we’ll talk about where you can save money for kids. I am not a financial advisor. This is not financial advice. This is what I do for my kids. It works for us but not may not work for everyone.
As a kid, my parents never talked about money with us. There was never conversations about how to build wealth or where to save money. I felt like this put me behind as an adult. I always felt like I was playing catch up because I was never taught these things. Finally, I taught myself and started learning at the ripe age of 25. To do better for my kids.
I knew even before I became a mom, that I wanted to do better on educating my kids about money. I wanted to put money aside for them, and give them a helping hand at growing their wealth. There is not any specific age you can start educating your kids about money. I recently created the Preschool Learning Money Worksheets to start introducing money to my 4 year old. He gets money for birthdays and holidays. I think it’s important that he starts to learn about it now.
Kids are given so much money throughout the time they are born to when they become adults. There are so many different ways to use or save the money for them. It can be overwhelming looking at all the options or trying to come up with a plan. Below, I will break down the different account types I use to maximize my kids’ wealth. I will also explain what their purpose is.
Disclaimer: This post includes affiliate links. I will earn a small commission if you purchase through the links. This comes at no extra cost to you. This helps keep the blog running and providing new printables for you!
Building My Kids Wealth
1. High Interest Savings Account (HISA)
There are a couple different options out there. Personally I use Koho for my savings account. I have the ‘Essential’ plan, it gives me 2% interest on the entire balance of my account. It lets you create multiple goals that you can set amounts and timelines with. It is a great visual tool for savings. In my Koho account, each of my children have their own goal. The purpose of this account is to help pay for extra curricular activities. It also serves as savings to go towards their first vehicle. This account can be seen as more of a sinking fun vs a savings account. If the money approaches the account’s goal before we need it, I’ll take a portion out. Then I’ll move it to an investment account or a GIC.
If you are interested in opening a free account with Koho, use the code VATJ5W1FRE. Open an account and spend $20 or more. You will get 3 months of the Everything Plan for FREE!
2. Kids Bank Account
I opened both of my kids their own account through a bank. Their accounts have no fees & they have their own bank card with access to their money. Currently, this account only gets funded via birthday & holiday money. Once they get a job, their pay will be deposited into this account. They don’t have any reason to spend anything from this account yet. When they get a little older, I will explain the account to them. They can then choose if they want to buy things with their money. Until then, the value of the account will slowly go up.
3. Registered Education Savings Plan (RESP)
This is one account that most people are aware of when it comes to saving for their kids. With this account, the government matches 20% of your contributions, up to $500 annually. I have set up my kids RESP’s through Wealthsimple as self directed investments. It is easy to deposit money into the account. I can see exactly how well the investments are doing whenever I’d like. This account is funded by birthday gifts and holiday money. It is also funded through their HISA account at the end of the year and monthly contributions. The purpose of this account is to save for college or university.
You can open a Wealthsimple account for free and begin investing right away. Wealthsimple offers a range of financial products. You can choose to one of the portfolios they create or invest the funds through self directing. Click HERE to start investing with Wealthsimple.
4. Guaranteed Investment Certificate (GIC)
GIC’s are not my favorite way to invest or save my kids money. But they do have their moments! GIC’s are a guaranteed way to earn a return on your money over a short period of time (1-5 years). Right now I have a 5 year GIC set up for each child. Once those have matured I will move the money into their HISA. Once we are about 5 years away from needing funds for a specific reason. For instance, their first car, moving out expenses, their first deposit into their TFSA, etc. Then I will start to build GIC ladders.
5. Other Investment Accounts
You can’t open investment accounts for kids. So currently, I have a secondary TFSA that I contribute to monthly. This only works for me because I have never contributed to a TFSA, so I have A LOT of contribution room. I have my TFSA’s set up through Wealthsimple as self directed accounts. The other alternative to this would be a non registered investment account. The purpose of this account is to save $25k+ per kid before they turn 18. Once they turn 18, a chunk of the money will be deposited into their own TFSA account. The rest will continue to grow in the TFSA or get put into GIC ladders. The goal of this money is to be a down payment on their first house.
How I Assign the Money
Since I have each account designated to a specific “task” so to speak. I fund them in the order of priority. All accounts are on automatic payments, except for their bank accounts. If I get busy one month, the money still goes into their accounts.
This is how I prioritize my kids accounts. This may not work for everyone, but it works for us. I am not a financial advisor, for advice on your finances, please reach out to one.
Priority 1 – RESP
In order the get the maximum grant of $500 per year, you have to contribute $2500 per year, per child. This account gets funded first. Once I have put in $2500 for each kid, I stop putting money in for the year. This account is only priority one because of the grant money. My goal is to gift my kids a large sum of money later in life. Yes, education is important. But a large sum of money offers numerous opportunities in their life. Which is why this account is funded the way it is.
Priority 2 – Investments
This one will get some flack. With a TFSA you have a contribution limit each year. If you go over that limit there can be consequences. The main thing to be careful with is going over the contribution room. If that isn’t an issue, than keeping it in the TFSA can work. Or you can choose to invest it in non-registered accounts under your name. However, you will have to pay taxes on that money when you pull it out. I have a monthly contribution set up for this account each month. When they kids get gifted money, 50% goes to their RESP if we haven’t hit the $2500. Then, 30% goes into the TFSA. The remaining 20% goes into their checking accounts. This is the account that will grow their money until they are over 18. This is where a large chunk of their wealth will come from.
Priority 3 – High Interest Savings
This account is priority 3 only because it gets funded the least on the automatic payment schedule. This account is primarily funded by the monthly contribution. If we know that we will be registering the kids for an activity soon, we will add more into it. We do the same if we need the funds for a big expense for them.
Conclusion
This is the way that I allocate my kids money to maximize their wealth. And to teach and encourage good financial habits as they get older. This strategy may not work for everyone but it does work for us. If you’ve been thinking about what to do with your kids money, I highly recommend doing your research. Look into the different options out there. And speak with a financial advisor. There are also plenty of good podcasts and books out there with information on the topic.