Sunday, February 23

Single Parent Finances

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I am a single parent. When I found myself unexpectedly pregnant at 31, one of the first things I worried about was how to afford a baby. Children are very expensive, and when you’re a single parent, you carry those costs alone.

My daughter turns 1 year old in a few weeks, which means both me and my budget survived my baby’s first year! It wasn’t easy but thankfully with some planning, budgeting, and making use of the resources available, it’s totally doable.

Single income family is not the same single parent family

There are plenty of families that live on one income. This isn’t always easy. More households than ever are dual income, and it’s out of necessity in order to afford higher costs of living.

But being a single income family is not the same as being a single parent. Yes, in both cases there is only one source of income. However, in only one case there’s something equally valuable: a second pair of hands.

Not having to pay for childcare is the same as earning an additional $15,000 (or more).

In single-income, two-parent household one parent is working for a paycheque while the other is working for the household. In a single parent household, the lone parent carries the entire burden. They must provide both a full-time paycheque and full-time childcare. A single parent must pay all child-related expenses, including childcare costs. A single income family does not have the expense of childcare and can spend their money on other things that contribute to their family’s physical and financial security.

23% of children in lone-parent families live below the poverty line, compared to only 6% of children in two-parent families. Being a single parent is hard on your bank account, but it’s not impossible. You will have to make more sacrifices in all things than a two-parent household, but it can be done.

Financial support from the other parent

Child support in Canada is federally mandated and for all intents and purposes, pretty standard. It is calculated based on the number of children and the paying parent’s before-tax income. Unless a judge decides otherwise, the amount is fixed according to the Child Support Table. The paying parent is legally obligated to provide financial support regardless of other arrangements, like custody. The custodial parent can elect to accept less child support or decline it altogether.

In addition to child support, the paying parent must also contribute to special expenses. These include childcare, healthcare expenses, post-secondary education costs, and extracurricular activities. You can read more about what qualifies as special and extraordinary expenses here.

In this sense, being a single parent doesn’t necessarily have to mean single income either! However, child support and additional payments for special expenses are probably not going to be the same as a second income. In Canada, child support works out to approximately 10% of the paying parent’s gross income for one child. This is nowhere near the equivalent of a second household income.

Take advantage of income-based grants and subsidies

One of the few perks of single parenthood is that your income is the entire household income. Even a decent salary might qualify for grants and subsidies because it is only one income to provide for an adult with dependents. Furthermore, child support is not considered taxable income. You will have to claim your child support when you file your taxes, but it will not be counted when assessing you for grants and subsidies.

Here are some of the grants, subsidies, and benefits you might be entitled to as a single parent:

The Canada Child Benefit (CCB)

Families can receive up to $6,496 per year for children under age 6 and up to $5,481 per year for children aged 6 to 17. This grant is deposited directly into your bank account or mailed as a cheque to your home every month. How much CCB payment you receive is dependent on your household income.

RELATED: The Canada Child Benefit Explained

If your income is high enough, it might make sense to contribute to an RRSP in order to lower your taxable income to qualify for a higher CCB payment. Check out my post, The Canada Child Benefit Explained, to learn more about how to optimize this for your family.

Childcare Subsidy

Every Canadian province offers some sort of financial assistance for childcare expenses to qualifying families. Because single parents often have to pay for childcare, subsidies can make it more affordable.

When trying to decide between different childcare options, such as a daycare, dayhome, private nanny, or family babysitter, make sure to research which will qualify for childcare subsidies and how much. An expensive accredited daycare can end up being more affordable than a dayhome, if it will allow you to use the childcare subsidy.

The Canada Education Savings Grant (CESG)

The Canada Education Savings Grant is a disbursement provided by the government matching 20% of your contributions to your child’s RESP, to a maximum of $500 per year. The CESG has a lifetime maximum of $7,200. To receive the maximum CESG amount,  you’ll need to put at least $2,500 per year into your child’s RESP, or approximately $200 per month for 14.4 years.

RELATED: Group RESPs Are The Worst Way To Save For Your Child’s Education

The CESG will be automatically deposited to your child’s RESP after you make a contribution. Depending on the account, this could take a few weeks, but no action is required on your part except to simply wait.

The Canada Learning Bond (CLB)

The Canada Learning Bond (CLB) is additional money the government provides to a child’s RESP to help parents save for their child’s post-secondary education. The total amount can be up to $2,000. Unlike the CESG, you do not have to deposit any money into the RESP to receive the CLB. All you need to do is open an RESP.

RELATED: CDIC Deposit Protection For Your Child’s RESP

Based on your income the government will deposit up to $500 the first year you open the RESP, plus an additional $25 to cover any costs of opening the account. You can then receive up to $100 each year your child remains eligible based on your income, until they turn 15.

The Working Income Tax Benefit (WITB)

The Working Income Tax Benefit is a refundable tax credit for low-income families. If you have children and your net income is less than $28,975, you may be eligible to receive the WITB depending where you live. You can learn more about the WITB and check your eligibility here.

Additional Provincial and Federal Tax Credits and Benefits

Depending on where you live, you may be entitled to additional tax credits and benefits based on your income. For example, I live in Alberta where families may be eligible for:

  • The Alberta Family Employment Tax Credit (maximum $2,064)
  • The Alberta Child Benefit (maximum $1,128 for your first child + $564 for each additional child)
  • The Alberta Climate Leadership Adjustment Rebate (maximum $450 + $45 for each eligible child)

That is nearly $3,700 in benefits for a single parent of one child, depending on income! You can view the specific provincial and territorial benefits for your region here.

Making your single parent finances work

Once you know your income, any support payments you’ll receive, plus grants and subsidies you’re eligible for, you can create a budget. Generally the same rules apply for singles as couples: don’t spend more than you make, get rid of your debt, and save for the future. But there are a few things you need to be more cognizant of.

Keep your biggest expenses as low as possible

Generally, the biggest expenses of any family of any size are housing and childcare. You want to try to keep these as low as possible in order to maximize the amount of money you can spend elsewhere. The challenging part is you generally don’t want low-quality childcare or poor housing, even if it is cheap.

It may not be possible to reduce both these expenses in tandem. You may have to choose one over the other. It might be worthwhile to choose more expensive housing if it’s in an area with affordable childcare. Likewise, it might be worth moving to a more affordable neighborhood even if childcare is more expensive. The only situation you really don’t want to be in is living in an expensive neighborhood and also paying for very expensive childcare.

Start saving for you and your child

Once you’ve managed to find housing and childcare that you can afford, you want to make a point to start saving. Open a Registered Education Savings Plan (RESP) for your child. You also want to have a Tax Free Savings Account (TFSA) for yourself. You may also elect to contribute to a Registered Retirement Savings Plan (RRSP) as well.

Eliminate debt as quickly as possible

When your expenses are high and income is tight, it’s easy to use credit to fill the gaps. The sooner you can pay off debt, the sooner you can spend money elsewhere. Focus on eliminating high-interest debt like credit cards first, and focus on low-interest debt like student loans last.

Don’t beat yourself up if you cannot put a lot of extra money towards your debts while raising a small child. Childcare costs are crippling, and it may not be possible to get to debt free while also paying your daycare bill. The years when your children are small are hard years. Sometimes the most you can do is survive.

After housing, childcare, and savings, the rest of your budgeting is pretty standard. Don’t spend more than you make, save for your own future, and try to keep a little for yourself. The only real “secret” to good financial management is the one everyone already knows: discipline.

Because you’re carrying the burden of supporting your family alone, you’ll need to be more careful than couples, but you’ll do whatever it takes for your kid! And you both can thrive with financial security, right now and in the future.

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About Author

Student debt killer, super saver, and stock market addict. BSc. in Chemistry from the University of Alberta, MBA in Finance from the University of Calgary. CEO x 2 and MOM x 1. Currently residing in Calgary, Alberta, Canada, but hooked on travelling.

1 Comment

  1. I really liked this post! It’s so interesting to see how other single moms manage. I have written posts just like this on my blog and it’s cool to see what we wrote that is similar and what is very different. Good stuff!