BY ANDREW STEWART
I’ve spoken with many grandparents who are looking to help save for their grandchildren’s education and lifelong savings. After all, education will be expensive and they know that money will also be needed for future events. Grandparents can also see how stretched their own kids are financially, and are concerned they won’t be able to set aside the needed funds for their grandchildren’s education. Most grandparents settled for offering cash gifts to their kids and more gifts for their grandchildren for birthdays and holidays. And yet, it may often feel like they are just wasting money. They want to see the fruits of their efforts and not simply wait until they’re gone to leave a gift behind.
When I educate families on using a participating whole life insurance contract for grandchildren they have one question: Why didn’t we know this was around? Participating whole life insurance is the fastest growing alternative to the RESP and the only tax free gift both parents and grandparents can open for their (grand) children. From the day the plan is opened, the child or grandchild will receive a tax free annual dividend for life, which can be used towards any school or education program around the world and any other financial need in life.
One of the features grandparents really enjoy is the ability to open a participating whole life insurance plan for each grandchild, fund it, own it and eventually when they’re ready, gift it to each grandchild to help pay for their education, its completely tax free. Participating whole life insurance plans have actually been used by Canadian families as a safe, long term way to save for their children’s education and future for over 100 years. Sometimes, what’s old is new again.
That’s when it dawned on me. While I’ve dutifully saved for my child’s postsecondary education, I neglected the one investment that would be more important than her education to provide her with a secure financial future. Her own home; is it more essential for my child’s financial future that I save for her education, or for the down payment on her first home?
My daughter was born in 2012. A four-year undergraduate degree today cost $68,000 and continues to increase annually by about 4%. By the time she attends university, assuming she’ll want to attend university, the cost will be over $100,000 when she’s 17.
I recently went to an open house to look at what $1 million would buy today.
What I saw made me seriously concerned about my daughter’s future. A four-bedroom house with two bathrooms in Markham was listed for $1,098,000. The couple who buys this house will need at least $250,000 to close the purchase if they want to avoid paying the bank an additional 1.5% of the total mortgage for mortgage insurance (CMHC). Where in the world will a regular couple in their 30s or even 40s, with one or two young kids come up with a $250,000 down payment?
So, what’s the best way to plan for my daughter’s financial future? I will encourage my daughter to pursue postsecondary education. The provincial and federal governments across Canada have and are creating dozens of programs to help our children pay for university. At the same time there are no programs available for my child to save for her first home, other than the “bank of mom and dad”.
My plan was simple. When my daughter was 9 months old I started investing for her future with education and down payment on her first home as my goal. By the time she’s 35, I will have a participating whole life insurance plan that will have almost $200,000 of cash value, which I can give her (completely tax free) to use for her first down payment. My daughter will either ask me to help with the cost of her first home or will expect to inherit mine.