Working with parents-to-be can be a challenge, especially when the new arrival is a first child. Not only are there many financial issues to consider, but emotions can also run high.

“New parents often have a sense of urgency about their financial situation because suddenly, their income has to go much further,” says Bryson Milley, financial advisor and associate portfolio manager with the Rogers Group in Vancouver. “I try to help them feel that they can provide well for their child and reassure them that they’re probably in better financial shape than they realize.”

Milley focuses his discussions with new parents on three areas: cash, debt management and life insurance.

> Look at cash flow and debts
Look at how much cash the client or clients currently have and how that will change when one of them is on maternity leave. Help them determine where they can cut back in order to manage on a reduced income.

Regarding debt, Milley says, there are no right or wrong answers. “Textbooks tell you to reduce debt as quickly as possible,” he says, “but many clients feel they need extra cash at such an expensive time. You have to balance those competing objectives.”

Advise clients to be careful about how much they spend on interest, MIlley suggests, especially with rates expected to rise soon.

> Review life insurance
Life insurance coverage should be sufficient to cover all debts and ensure the family home is owned outright, plus a $200,000 nest egg per survivor.

“We rarely do anything other than a 10-year term policy because new parents usually can’t afford to spend much,” Milley notes. “If someone is in their early 30s, $1 million in coverage costs about $50 a month. And both parents should be covered.”

> Check medical plans
If a parent has group medical insurance, be sure they add the child to it. If both parents have plans, help them decide which is the better plan and enroll the child in that one.

> Open a registered education savings plan
Education saving should start as soon as the child is born, says Cathie Hurlburt, senior financial planning advisor with Assante Financial Management Ltd. in Vancouver. They’ll need to get the child a social insurance number before opening an RESP.

If possible, parents should contribute at least $2,500 annually, which will attract the maximum annual government contribution of $500 ($7,200 lifetime per child) via the Canada Education Savings Grant. The money enjoys tax-free growth while investments remain in the RESP.

Grandparents and siblings can contribute tax-free to an RESP, while lower-income parents are eligible for supplemental income-sensitive education grants.

> Remind them of the child fitness credit
Remind parents that they can claim up to $500 annually for eligible fitness expenses for children under the age of 16. “That includes swimming classes for infants,” says Hurlburt. “It’s a much better way to spend money than buying more toys.”

> Offer encouragement
Some advisors make new parents feel guilty about not saving enough, Milley says. But he takes a more positive approach: “I tell them that new parenthood is typically the most expensive time in a person’s life,” he says, “and that in 10 years, when their expenses are lower, they can start to catch up.”

Adds Milley: “They should continue their pension plan contributions.”

IE