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How To Save For Your Child’s Secondary Education

How To Save For Your Child’s Secondary Education

Daughter hugging mother after graduating with a diploma in her hand

Daughter hugging mother after graduating with a diploma in her hand

Before you know it, your little daughter or son isn’t going to be so little anymore. It’s incredible how quickly the time flies by, and in a blink of an eye, you’ll be helping them fill out College or University applications and packing the car to head out on campus tours. The average price for post-secondary education for a Canadian child born in 2018 could cost as much as $30,300 for a year. That is more than $120,000 for a four-year program! Approximately half of the students graduating from post-secondary studies in 2018 report having education-related debt, owing an average of $28,000. The reality is more and more students rely on financial support from their parents to afford post-secondary education. As you can see, knowledge is expensive, so it’s best to start helping them save as soon as possible. Below are a few ideas as to which tools might help you to zonk away money that will help your child achieve their education goals.

Get a Registered Education Savings Plan (RESP)

Helping your children or grandchildren with their further education is extremely kind and beneficial. Giving them the extra advantage of post-secondary education opens doors for them like no other. Having an RESP can help you save that money faster for the future while moving into an account you can transfer to them later in life.

A Registered Education Savings Plan (RESP) is similar in theory to an RRSP, but instead of helping Canadians save for retirement, it’s designed to help you put aside money for your child’s education while offering incentives and tax savings. Within an RESP, you can invest up to a lifetime total of $50,000 for each child. The Canadian Government will also contribute to this RESP –with what is called the Canada Education Savings Grant (CESG). They will contribute 20% of what you put into your RESP (up to $500 per year), and up to a maximum of $7200 in total. For low-income families, they will contribute even more. The earlier you start an RESP, the more government contributions will be added, and the more interest will be earned along the way.

Unlike an RRSP however, contributions to an RESP aren’t tax deductible; any investment income earned will not be taxed until it’s withdrawn, which can also contribute to significant savings over the years. Do not worry if you can’t contribute much to your new RESP. Just getting started is what’s important. The rest will happen over time when you’re able to contribute.

When the children are eligible to receive the money after they turn 17, they pay the tax which is usually at a much lower rate than what you would have paid while contributing to it.

Use these 3 strategies to gain more from your RESP:

  1. Start Early. As soon as a child has a Social Insurance Number, you can open an RESP.
  2. Make Regular Payments. Set up regular contributions so you save time and it becomes part of your routine.
  3. Focus on less risk and higher returns. Make sure your portfolio is diversified; so it meets your personal goals and is strategically planned to limit the amount of risk to your savings.

Find out if your family qualifies for the Canada Learning Bond (CLB)

The Canada Learning Bond (CLB) is free money from the Government to lower-income families to assist them in saving for their child’s future education after high school. It provides an additional $500 lump sum, plus an additional $100 per year until the child turns 15 years old, for up to a maximum of $2,000. Through the Canada Learning Bond, the Government will add money to the RESP for an eligible child every year, even if you do not add any money. It’s important to note that applying for and receiving the Canada Learning Bond will not affect any other benefits you or an eligible child will receive.

Consider opening up a family plan.

An RESP can be either a family plan or an individual plan. An individual plan is designed for a single beneficiary; a family plan is for multiple beneficiaries. If one child does not attend post-secondary or does not use all the funds, the remaining balance goes to your other children.

Get other family members involved.

Do your parents just LOVE spoiling their grandchildren? Consider putting their cash donations for toys or sweets towards your children’s education. When your extended family asks what your son or daughter wants for Christmas, mention that they have an RESP account as well. This donation is a gift to them, and to you!

Get creative when it comes to saving money.

Sure, it may be easier to donate your old items to a used store or put a bunch of items at the end of the road labelled “FREE!” But instead, what if you have a yearly garage sale and teach your children about the importance of saving money? Put your profit from that garage sale every year into the RESP account. It’s a great learning experience for them and learning about how to manage finances is often overlooked in our school systems.

Another great way to help teach your children how to save money is if your children have an allowance, double that and put that money aside into the RESP. In a way, it’s like they are working to put money aside to benefit their future. Even $2.25 a week makes a huge difference. Maybe even offer to match whatever they contribute out of their weekly allowance so they start to understand how to leverage financial benefit programs.

Work with a financial advisor to strategically invest in your children’s education.

College or university can be an expensive endeavour for your child, so it is beneficial to plan early by using a Registered Education Savings Plan. Financially planning for the future doesn’t have to be scary or overwhelming. By opening and adding to investment accounts, you can ensure a bright future for your family and your children’s education. Remember, I am always happy to help you better understand your investments and how you can use the tools at hand to build a solid financial foundation for the future. If you have any questions or would like to set up an RESP, don’t hesitate to give me a call at 705-315-0516.

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