A fresh take on the universal child care benefit

Since the $160- and $60-monthly payments can’t really make a dent in childcare costs, consider using the money for a long-term financial goal.

By now, parents with children under age 18 should have received a couple of payments for the revamped federal Universal Child Care Benefit (UCCB). Like the old-style baby bonuses our parents received when we were kids, the UCCB is a monthly stipend given to parents for each child. As of this year, the monthly benefit is $160 for children under age six, and $60 for those age six to 17.

In a big city, where monthly daycare costs for preschoolers can be well into four-figure amounts, $160 won’t go very far. And $60 for the older kids will barely cover the cost of a new pair of shoes. (Bear in mind that you’ll also have to pay income tax on these benefits when you file your return the following year.)

So, here’s an idea. Instead of spending the money on incidentals, save it for your child’s future post-secondary education.

I’ve crunched the numbers, and if you put all the payments—from birth until the end of age 17—into a Registered Education Savings Plan (RESP), you’d have socked away more than $20,000 by the time your child turns 18 and is getting ready for college or university (and that’s not even including any earnings on your investment over the 18 years).

Universal Child Care Benefit calculation:

  • $160/month UCCB x 12 months = $1,920 UCCB per year until age 6
    x 6 years (from age 0 to end of age 5) = $11,520 total UCCB payments until age 6
  • $60/month UCCB x 12 months = $720 per year until child turns 18
    x 12 years (from age 6 to end of age 17) = $8,640 total UCCB payments from age 6 until child turns 18
  • $11,520 UCCB until age 6 + $8,640 UCCB until age 18 = $20,160 total UCCB payments

But wait, there’s more. The government will give you 20 per cent of your annual RESP contributions (to a maximum of $500 per year per child) in the form of a Canada Education Savings Grant (CESG). Add those payments in, and the total (before investment earnings) when your child turns 18 is more than $24,000.

Canada Education Savings Grant calculation:

  • 20% of $1,920 annual RESP contribution = $384 CESG per year until age 6
    X 6 years (from 0 to end of age 5) = $2,304 total CESG payments until age 6
  • 20% of $720 annual RESP contribution = $144 CESG per year until child turns 18
    X 12 years (from age 6 to end of age 17) = $1,728 total CESG payments from age 6 until child turns 18
  • $2,304 CESG until age 6 + $1,728 CESG until age 18 = $4,032 total CESG payments

Now figure in a modest annual return of about three per cent, compounded over the 18 years, and you’ve got more than $34,000 in that RESP for your child’s education. That sounds a lot better than $160 a month, doesn’t it?

Investment returns calculation:

First 6 years:

$1,920 UCCB + $384 CESG = $2,304 annual RESP contributions until age 6

$2,304/yr earning 3% interest per year, compounded X 6 years = $15, 350.31 in RESP by age 6

Next 12 years:

$720 UCCB + $144 CESG = $864 annual RESP contributions from age 6 until child turns 18

$15,350.31 (already accumulated in RESP by age 6) + $864/yr earning 3% interest per yr, X 12 years = $34,515.64 in RESP by the time child turns 18

To make the process even simpler, set up automated monthly transfers from your bank account to the RESP, so you’re never even tempted to spend those funds.

It’s free money from the government, people. It’s up to you how you want to use it.

Keep the conversation going

Let me know—how are you spending your UCCB payments? Leave a comment below.

Disclaimer

The views and opinions expressed in this article are those of the author and do not necessarily reflect that of CPA Canada.

About the Author

Tamar Satov

Managing Editor, CPA magazine
Tamar is a journalist specializing in business, parenting and personal finance. She blogs regularly in this space with advice and anecdotes on her efforts to raise a money-smart kid.

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