Category Archives: Kids

What Do You Tell The Kids?

Dee asked a few questions the other day with respect to kids and early retirement.

How old will your kids be when you retire? I remember my mom retired for my last year of high school and I had to get myself up and to school while she slept in. She did let me use her car to get there, though, so that part was nice. Do your kids anticipate any particular feelings about your retirement?

The first question is rather easy, so let’s address that first.  My oldest will be 13 at the time while my youngest will be almost 10.  So they won’t be really young, but that will be in that lovely stage just before teenagers.  So on the plus side they will be mature enough to explain the entire concept to them if I want, but I’m not sure I will.

I have to admit I’m a big concerned about my kids thinking we have lots of money.  We live a comfortable life right now, but we don’t act rich.  Yet I do worry about telling them straight out that their Mom and Dad have a million dollar net worth. I’ve seen odd things happen to kids who think their parents are rich.  Like for example: a lack of motivation, a sense of entitlement or just plain old arrogance regarding money that isn’t theirs.

While my wife and I haven’t firmly decided on what to tell them yet, I’m leaning towards the truth, but in a context that makes more sense for them.  I don’t have an exact speech in mind but it would likely be something like:

Hi guys, we need to talk.  Dad is leaving his current job on [insert date here].  But that’s okay, since we have got a lot of savings we don’t have to worry about paying for groceries .  Dad is going to change jobs to writing.  You remember his book downstairs, well I want to make more of those.  So my new job will be writing books.  I will work from home just like Mom does from now on, so I will be here when you leave and get home from school.  Any questions?

Of course I will play it by ear a bit.  It depends a bit on how much they already know.  It’s not like I actually hide my retirement plans or anything, but at the same time I don’t put it in their face.

Now some people may assume by telling them my job will be writing, that I’m lying to them.  I personally don’t see it that way, as writing will be my job.  I just don’t worry about making much money at that job and all my deadlines for work will be entirely self imposed (until I sell a book to a publisher and then I have to meet their deadlines).  I do love to write, so I will be doing that regardless of anyone paying me.  Like you know, right now, writing this post for you. 😉

RESP Or Getting Free Money

You might have noticed that on my investment net worth statements I NEVER mention our RESP account we have setup for our kids.  The simple fact is I treat that money as theirs and that I’m only the caretaker of it.  So I tend to ignore it for most of the time.  Yet as number of my friends have been having kids lately I keep telling a similar story that might be useful for some other parents out there on how to save rather painlessly for your kid’s education.

I’m a firm believer in taking free money when every I can get my hands on it so for a number of years we filed our taxes and got our government grants for our kids.  The two programs we typically got money from were the Universal Child Care Benefit and Child Tax Benefit.  The Universal is by far the most straight forward, you get $100/month for each kid under the age of six while the Child Tax amount depends on your income but again is paid monthly.

Rather than actually spending any of that money on my kids I treat the entire amounts as free money and I setup a family RESP plan and put the money in that account where we get a 20% grant on what we put in up to $2500 per kid per year.  So in total I started our RESP account for the kids with all government money, where they added in more government money after we put in.  Then as the kids got older I kept the contributions the same and slowly starting paying ourselves after the kids’ Universal Child Care stopped (right now the contribution is $167/kid/month).  The advantage of this method is your income by this point has typically gone up a bit so it is a bit easier to cover it yourself.

Our investment of choice is actually boring as hell, it is just a dividend mutual fund which has returned about 6% since we picked it in 2005.  Yet overall all these actions has resulted their RESP account having a balance of $45,800.  Not too bad when in fact I haven’t put in that much of my own money.  Also this means I’ll likely surpass my target of saving $40,000 per kid, as my oldest is now 9.  So assuming things continue the same pace the kids should have ~$100,000 between both of them when I’m ready to quit full time work around age 42.

Obviously there are several different ways to approach saving for your kid’s education, but I found our method fairly easy to use.  If you have kids, how much are you trying to save?  Are you on track to meet it? Any other ideas on how to save for their education?

A Real Gift for the Kids

While most parents focus on buying that perfect gift for their kids for the holiday season, I tend to skip that.  I don’t want then to have the ‘perfect’ gift, but rather a gift.  Since more often than not about a month after opening their present they won’t be able to tell you who bought them that toy anyways.  Instead I tend to focus my efforts right now on something the kids never even see their Registered Education Saving Plan (RESP) account.

After all what do you want most for your kids?  To be happy, to grow up and find something they like to do as a job and potentially retire early themselves (if they would like to).  So an investment in some kind of post secondary education will likely help them out for the majority of their lives (especially if they can keep any student loans to a minimum).  While I don’t know what my kids will want to do when they grow up I am at least taking some steps to put some money aside for them.

Currently their RESP account has a little over $40,000 for both of them.  Not too bad given my boys are currently ages 8 & 5.  That gives me about 7 more years of saving to finish up saving for the first kid.  We currently put aside $167 per kid, per month.  So adding in all their grant money and assuming a 4% real return we should have just under $95,000 (in today’s dollars), by the time the first kid goes to post secondary.  So overall each kid will have around $50,000 to fund some kind of education.  Will that pay for it all? Frankly I doubt it, but it at least gives them a good start in life.

You see I love my kids, but I have no illusions of paying their way through Harvard law school which tuition alone for a SINGLE year is over $50,000.  Needless the say, I’m keeping my sights a wee bit more modest for them.  You see I really don’t want them to have “the best”, just like their holiday gifts, I just want them to have something.

So how much would you put towards your kids education?  Do you look for the best or settle on more realistic dreams?