Personal Finance

Children - How to Allocate When Child < 18 years old

  • Last Updated:
  • Feb 25th, 2019 7:35 pm
[OP]
Newbie
Nov 3, 2018
11 posts
1 upvote

Children - How to Allocate When Child < 18 years old

Hi Everyone,

Seeking some allocation information. I have a young child who is under 18 years of age. I have been seeking different investment options. The RESP and the child savings account are the main ones I have found.

The child savings account pays such low interest that inflation > interest paid and I was wondering if there are any alternatives that exist. There are traditional ones, where you allocate money in gold, silver, painting, etc but I was wondering if there are any other alternatives.

Thanks
10 replies
Deal Addict
Jan 2, 2015
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Sorry, I don't understand. Gold, silver, paintings are NOT normal investments for kids.

Why not just set up an in trust investment account if you are looking for longer term?
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Sep 10, 2017
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I'd say defiantly look further into RESP, especially if you are eligible for government grants. As long as your child goes to some form of post-secondary you can withdraw the funds with the gains and grants taxable under your child (who will probably have a much lower tax rate than you, possibly zero). And know that RESP's are a vehicle, and you can invest whatever you want in an RESP, including stocks/bonds/ETF/mutual funds/GIC/saving accounts etc. Let me know if you'd like me to elaborate further.
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Jan 2, 2012
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KingKongoftheDataMonkeys wrote:
Feb 25th, 2019 11:41 am
Hi Everyone,

Seeking some allocation information. I have a young child who is under 18 years of age. I have been seeking different investment options. The RESP and the child savings account are the main ones I have found.

The child savings account pays such low interest that inflation > interest paid and I was wondering if there are any alternatives that exist. There are traditional ones, where you allocate money in gold, silver, painting, etc but I was wondering if there are any other alternatives.

Thanks
"Under 18" doesn't tell people much. Are they closer to age 1 or age 15?

Your "savings account" is just that, a typical savings account giving you practically nothing in interest.

Best way to invest for kids is via RESP, with some exposure to the stock market (be it through mutual funds, ETFs, etc). You can talk to your bank in setting up a RESP with access to these types of investments.

In general you would want to take more investment risk (so higher % of portfolio in equities) the younger the child is, and moving more % to less risky stuff (GICs, money market, bonds, etc) the closer they get to needing the funds.
[OP]
Newbie
Nov 3, 2018
11 posts
1 upvote
Answers to questions
- The children ages are closer to 1
- The RESP is maxed based on gov't grant structure. This is managed.
- There are additional funds they have received from family - these additional funds are not being maximized in a savings account. They are losing purchasing power over time

The challenge is this - hypothetically the child may have already 50k from grandparents, etc. The 50k maximizes the RESP, but makes little sense in the savings account because the rates are terrible. How do you put this surplus money into some sort of instrument that yields a return greater than inflation ~3%?
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May 8, 2009
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OP what a name. Can keep a savings float at Motive for 2.8% HISA, 2.4% TFSA. SCU for 2.9% TFSA. Hubert for their various interest rate options.

How many children? You have multiples?

RESP's are great, but you don't have to invest all in there.

I wouldn't burn kids' education money on artwork/painting auctions.
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[OP]
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Nov 3, 2018
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@titaniumtux - TFSA's are maxed out and the child cannot have a TFSA until they are 18

The big challenge is what to do with the additional cash. Are there any products that are tied to the children that do not cause tax consequences for the parent that pay >1%?
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KingKongoftheDataMonkeys wrote:
Feb 25th, 2019 2:19 pm
@titaniumtux - TFSA's are maxed out and the child cannot have a TFSA until they are 18

The big challenge is what to do with the additional cash. Are there any products that are tied to the children that do not cause tax consequences for the parent that pay >1%?
For a 1 yr old, probably no HISA.
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One option would be to direct the child's monthly Child Tax Benefit (CTB) into an informal "In Trust" account at a discount brokerage. Then all income would be attributable to the child.
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If the RESP is maxed, put it in your own account and invest it.
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KingKongoftheDataMonkeys wrote:
Feb 25th, 2019 2:06 pm
Answers to questions
- The children ages are closer to 1
- The RESP is maxed based on gov't grant structure. This is managed.
- There are additional funds they have received from family - these additional funds are not being maximized in a savings account. They are losing purchasing power over time

The challenge is this - hypothetically the child may have already 50k from grandparents, etc. The 50k maximizes the RESP, but makes little sense in the savings account because the rates are terrible. How do you put this surplus money into some sort of instrument that yields a return greater than inflation ~3%?
If your kids had $50k right now and are one, then I would do the following

Put in $2500/ year to max the grant into the RESP
$14K one time RESP to max the remaining amount without the grant to max the amount
Remaining into an Informal Trust. Capital gains are attributed to the child, dividend, interest taxed according to attribution rules
On a 'smart' device that isn't always so smart. So please forgive the autocorrects and typos. If it brothers you, then don't read my posts, but don't waste my time correcting me. If you can get past the typos, then my posts generally have some value.

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