Parents: How to Give the Gift of Cold, Hard Cash This Holiday

The best thing you can give your kid this holiday season? Cash! Use this method to make money on top of your gift.

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There are a number of deadlines coming up from the Canada Revenue Agency (CRA) very soon. One of which is a benefit that parents must be aware of. If not, parents could miss out on hundreds or even thousands in cash. Today, let’s give back to your kids, and with the best option ever: cold, hard cash.

The RESP

Canadian parents have access to contribute to the Registered Education Savings Plan (RESP). The RESP allows parents to put aside cash for each child, every year, rather than try to pay it all at once. Further, they can invest on the way. This allows you plenty of time to work towards the hundreds of thousands of dollars you could need to pay for your child’s education.

But there is a bonus here! The Canadian government also has the Canada Education Savings Grant (CESG). For each year that you contribute, the government will match 20% of your contribution each year up to $500, and a lifetime limit of $7,200. So, to max it out, you would need to contribute $2,500 each year.

The key here is that you want to hit the deadline of Dec. 31. And I’m not sure if you’re aware, but that’s coming up! This is why you want to get in on this grant before it’s too late, because it can certainly add up. Let’s see how.

Investing in their future

So, if you’re going to invest in your child’s future education, you want to be safe and secure. Part of that cash should likely be put towards a Guaranteed Investment Certificate (GIC). Right now is the best time it’s been in quite some time. You could lock up a 5% fixed rate for a GIC. Your child’s education is therefore guaranteed to bring in 5% each and every year.

However, you could certainly put some of that towards safe and stable income stocks as well. This would include companies such as Canadian banks and essential companies. But you want to get some income back, which is why banks tend to be best.

For instance, consider an exchange-traded fund (ETF) that offers a high dividend yield and exposure to the banking scene. BMO CA High Dividend Covered Call ETF (TSX:ZWC) is an excellent option. You can bring in a dividend yield at 8.03% as of writing, exposure to Dividend Aristocrats, and with shares recovering, down just 3.9% as of writing.

It all adds up

So, if you’re looking to make a huge impact on your child’s future, this is exactly what you can do. Let’s say you max out and get to that $2,500. You then get another $500 from the government, coming to a total of $3,000. Now again, you’re going to put some into a GIC, but for the purpose of this example, let’s say you put that towards ZWC ETF right now. Here’s what that could look like in just a year, with dividends coming in and the stock reaching 52-week highs once more.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYPORTFOLIO TOTAL
ZWC – now$16.70180$1.32$237.60monthly$3,000
ZWC – highs$18.25180$1.32$237.60monthly$3,285

In just a year, you could make dividends of $237.60 and returns of $285. So, that’s another $522.60 right there from investing! You could earn an extra $1,022.60 for your child’s future on top of your original investment. So, start giving this holiday season with something that actually matters, like cash for your kid!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in Bmo Canadian High Dividend Covered Call ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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