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Parents that invest the money in their children’s RESPs will get a matching 20 per cent grant from the federal government for contributions of up to $2,500 per year.Morsa Images

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For Ontario parents facing some of the highest child-care fees in Canada, the promise of up to $6,000 in rebates per child is a welcome respite.

The phased-in savings are part of a five-year, $10.2 billion deal with the federal government that will slice the province’s child-care fees in half by the end of the year and down to $10 a day by the end of 2025. Similar plans have already been approved or are in process in the rest of Canada.

While the deal will only make a difference of 25 to 30 per cent in the total annual cost of child care at participating providers for now, a conversation is definitely warranted on how clients can best put those newfound savings to use, says Seema Sharma, certified financial planner (CFP) with Carte Wealth Management Inc. in Mississauga.

“Ontarians have probably waited a bit too long for this aid, but I found it very interesting to know that some of my clients with young children are very happy with the news,” Ms. Sharma says.

“We’re recommending most families use their payments as part of their budget for things like clothing, school supplies, and food.”

While some may be tempted to treat their rebate cheques like a bonus or an excuse to indulge in lifestyle-related expenses, Myron Genyk, chief executive officer and co-founder of Evermore Capital Inc. in Toronto, urges parents to resist.

“It’s very hard to ratchet that spending back down when your expenses start increasing,” says Mr. Genyk.

He adds to use the newfound cash to first pay down any high-interest or credit card debt.

“That strategy will beat any returns you would otherwise earn by investing it.”

After that debt is paid off, he says clients can always boost the amount they’re saving for a down payment or add it to their children’s registered education savings plans (RESPs) if there is unused contribution room, or save and invest for retirement.

Managing the rising cost of living

Meanwhile, Jackie Porter, CFP and founder of Team Jackie Porter at Carte Wealth Management in Mississauga, says having access to affordable child care is a game-changer in particular for working moms as they would normally be the ones making the sacrifice to stay home with kids.

Many working families have had to factor in child care costs equivalent to an entire mortgage payment for at least the first few years of a child’s life, she says.

“Now that we can see the light at the end of the tunnel and more reasonable child care costs, it may be a good time to top up that emergency fund from three to six months of lifestyle costs as the costs of living continue to climb,” Ms. Porter says.

“Having that extra cushion might give the family the extra breathing room it needs when life happens and help take them off the path of going into debt for unplanned expenses.”

The rising cost of living is also a major factor in why many young families have not been able to fund or maximize their tax-free savings accounts to date, Ms. Sharma says.

But with newfound rebates in hand, now is the perfect time to harness the power of this often under-utilized savings and investment vehicle to get ahead financially, she adds.

“If they can save $350 a month for five years at a 5 per cent rate [of return], they would reach about $25,000 in savings. And if they left that there for another 10 years, they would reach $40,000 by the time their child is ready for university or college,” Ms. Sharma says.

That’s an extra $40,000 without making any changes or sacrifices to their current budget, she adds, saying it will go a long way toward giving their kids a better start.

The benefits of government plans

Parents who invest the money in their children’s RESPs will get a matching 20 per cent grant from the federal government for contributions of up to $2,500 per year, says Anju Sharma, financial advisor with Hunjan Financial Group Inc. in Mississauga.

“If they’re already taking full advantage of this money, then they can use the child care benefits to build additional savings for their [children’s] post-secondary education,” she says.

Ms. Sharma of Hunjan Financial also points out that similar to an RESP, the federal government offers a grant called the Canada Disability Savings Grant (CDSG). She says families with children who qualify also use the benefits to contribute towards a registered disability saving plan (RDSP).

Another option is for parents to invest the cash in a registered retirement savings plan for themselves. This will reduce their taxable income, which in turn will make it easier to cope with future expenses.

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