EZ Gift Picks: Gifts That Keep Giving
Instead of giving the kids or grandkids the hottest toy or video game this Christmas, why not stuff their stockings with investment gifts that will put them on sound financial footing for years to come? Sure the little ones might not appreciate it right away, but it’s definitely a present they’ll be grateful for down the road.
“I have a lot of clients who believe that rather than giving a new tablet or the latest toys, they can put that money to better use with education or legacy plans,” says Angelo Mantzios, a Brampton, Ont.-based financial advisor for Sun Life Financial.
So, to help you get started on your gift list, Mantzios offers six great ideas that will reap financial rewards in the future.
1) A gift from the government
Higher education is a gateway to better career but with tuition fees rising, it’s becoming a financial burden to many Canadians. So why not relieve some of the financial pressure on a child or grandchildren by giving them a Registered Education Savings Plan. You can start the fund in the child’s name with a lump sum and then add to it each Christmas. The government will top up your contributions by 20 percent (up to a maximum). When the child reaches 18, he or she can begin using it to cover the high cost of education. “The rules regarding RESPs have changed,” says Mantzios. “Children can now direct their RESP toward government-recognized trade schools or specialty programs.” Learn more about RESPs here.
2) Save without the tax
“This is a great vehicle to grow money, tax free,” says Mantzios. Because federal regulations say you have to be 18 to open a TFSA, Mantzios suggests you open your own TFSA and when child turns 18, you can transfer it to or write a cheque for the amount in the account. The child can use money to pay for his education, or for anything else they might need. While you don’t get the government top-up you would with an RESP, the money is non-taxable when you withdraw it. Learn more about TFSAs here.
3) Insure their future
“I’m a huge advocate of giving an insurance product that has an investment component to it, in fact, my wife and I have done this for each of our three children.” says Mantzios. “It can reduce the need for buying insurance for themselves over the course of their lives and more importantly, it is an excellent vehicle to create non-taxable income in the future.” The money they save can be used for a down-payment on a house or to help pay for their education. Mantzios offers an example the financial rewards that a Whole Life insurance policy might provide. Say you purchase a $250,000 policy for a child, with premiums set at $250/month for only 20 years. Assuming current dividend interest rates, by age 20, the policy will have about $570,000 of insurance and the cash value will be about $70,000. If they keep the policy untouched until age 65, the cash value could reach $1 million. Grandparents can buy their own policy and name the grandchild as a beneficiary or they can simply set up a policy in the child’s name and pay the premiums.
4) Many happy returns
An Insurance GIC (aka Accumulation Annuity) works the same as a traditional GIC. Your capital is guaranteed, you have a set interest rate and set time period. What makes the Insurance GIC different is you can name a beneficiary! On death, there will be no probate tax, executor fees or wait time. The interest is calculated to the day of death and the beneficiary (ie: your child or grandchild) will inherit that money almost right away! Keep in mind, any earned tax will still be taxable to the estate, not the beneficiary. Find the best GIC rates here.
5) Give it away – now!
“Why not give the kids or grandkids an early inheritance now?” asks Mantzios. If, for example, the children are a bit older and need money now for university or travelling, it might make sense to distribute all your assets ahead of time. Sure you might die broke but at least you’ll get to see the family enjoy the fruits of your gift. Mantzios warns not to get overly carried away by your generosity – you certainly don’t want to put yourself into a position of financial duress.
6) The gift of learning
Top up any of the above gifts with a book that will help the kids learn about money. “Financial literacy is a hot topic right now,” says Mantzios. “And there are a lot of great books out there that will teach youngsters how to save, show them how to grow money, warn them about overspending and teach them how to get a financial head start by investing early.” Here are some titles to get you started:
- RRSPs: The Ultimate Wealth Builder By Gordon Pape
- Fight Back: 81 Ways to Help You Save Money and Protect Yourself From Corporate Trickery By Ellen Roseman
- How Not to Move Back with Your Parents: The Young Person’s Complete Guide to Financial Empowerment By Rob Carrick
- The Wealthy Barber Returns: Significantly Older and Marginally Wiser, Dave Chilton Offers His Unique Perspectives on the World of Money By David Chilton
- Money Savvy Kids: The Best Ways to Teach Your Children About Money for a Strong Financial Future By Deborah Kerbel