Saturday 18 April 2015

#RESPs and Saving for Your Kid’s Post-Secondary #Education

Start Schooling Yourself on Registered Education Savings Plans (RESPs) and Saving for Your Kids’ Post-Secondary Education

I've always believed post-secondary education is important. Not simply as a way to secure employment, but because of all the important life lessons that come with that experience. It's one of the reasons my husband and I have been saving for our kids' post-secondary education since they were babies. I see investing in my kids' education as an investment in them as people, and the return on investment is that they become critical thinkers and contributing members of society. But with education costs these days, saving for - and paying for - that education requires a plan.

Although I paid for my own university expenses, when I applied to and attended university I never really thought much about how I would pay for it. The tuition and associated costs were not as prohibitive as they are today. In the summers, I lived rent-free at my parents' house, and made enough from my summer job to pay for tuition, books and some spending money. I worked part-time during the school year to cover my rent and food. I was hardly going to be featured on Lifestyles of the Rich and Famous but I never starved or couldn't pay my rent. Of course in those days my tuition was about $1,500 a year plus another $500 for books. I had a second-hand "high end" electric typewriter (with the swivelling ball no less) AND matching typewriter table which made me the envy of all.

Cutting edge technology:

Fast forward to today, as my kids apply to college and university and the tuition is between $5,000 and $15,000 per year plus at least another $1,000 for books. These days a laptop, printer, smart phone, and internet access are all required tools for post-secondary studies, and they don't come cheap. Let's not forget the cost of residence and a meal plan (or food) and rent, if living out of town. So tack on another $10,000 a year for that. 

It's no longer possible to graduate debt-free while paying for school with a summer job and part-time work during the year. Without planning and help, my kids would be potentially $80,000 in debt after a four-year degree at a university out of town. I simply cannot imagine them starting their first job with that kind of debt. Repaying it would have such a huge impact on their lives; it would affect their ability to buy a car, a house, start a family, etc.

So our gift to our children - and it is a very generous gift indeed - is the gift of education. It is a gift of planning and saving for their futures. It is the gift of graduating debt-free. Since I am not made of money (hence the not being on Lifestyles of the Rich and Famous), the only way for us to afford this gift was to find ways to make our money work for us, have a plan, and start saving with enough time for those education savings to grow.

Sharpen those pencils, put on those thinking caps and school yourself on RESPs and saving for your kids' post-secondary education. 
Here are a few lessons I've learned along the way.
  •  Educate yourself. Do some research into what RESPs are, what types are available, and what options you have when it comes to saving for your kids' education. You should also research what education options qualify for RESP fund usage. It's important to invest time into making the right decision for yourself and your kids, and take advantage of all the savings opportunities available to you.
Government of Canada: Registered Education Savings Plans (RESP) 
Government of Canada: Choosing the Right Registered Education Savings Plans 
Heritage Education Funds Glossary of Terms

  • Start early! Really, you should start almost as soon as your kids are born. Even a small amount every payday or month adds up over 18 years. Setting up regular scheduled automated contributions is the easiest way I found to do this. Remember, you are not limited to auto deposits. You can make additional contributions or lump sum contributions when funds become available from a tax return, bonus or gift. Use one of the many RESP calculators available to determine how much you'll need to contribute over how many years it will take to reach your goal. 

  • When you receive lump sums of cash such as an income tax return or bonus from work, try to apply at least some of it towards starting an RESP, contributing to an existing RESP, or deposit it into a separate account to draw on monthly towards an RESP. By putting the funds into a separate account they will be easier to manage and you won't accidentally spend them on other items. Taking a bit of your tax return every year and putting it into an RESP really adds up over the long term, and helps to ensure you qualify for the maximum yearly CESG amounts you are entitled to.
  • If you receive a child tax benefit, consider putting aside a small portion of each payment to put towards an RESP and education savings. By setting up an automated deposit of these funds to a separate RESP account, you'll never see the funds in your main account, and thereby eliminate the risk of them being used for other items. As the saying goes, "out of sight, out of mind".
  • Be sure to take advantage of ALL possible government incentives and grants. There are several, so be sure you educate yourself on which ones you qualify for, and ways to maximize the amount you receive. 
Government of Canada: Canada Education Savings Grants (CESG)
CanLearn: Canada Education Savings Grant (CESG)

  • Lastly, include your children in this process and planning from a young age. Financial literacy is so important, and they will need to understand the efforts and sacrifice you're making on their behalf to save for their education. They need to understand what a special gift this is, and truly value it and how lucky they are to receive it. BONUS: this is a perfect opportunity to get some money management, budgeting, and goal setting lessons in. 

Tax Return time is just around the corner, so why not make this year's tax return time RESP time, and start saving for the gift that will keep on giving your child's whole life through.

Yep, just me Cathy thinking out loud about RESPs.

Note: As a Heritage Mom I was compensated for this post, and for sharing my thoughts about RESPs and saving for post-secondary education. All opinions are my own and reflect my personal experience saving for my two kids' education.

1 comment :

  1. This is fantastic Cathy (love the type writer there!). It is amazing how quickly the costs add up and it is SO IMPORTANT for parents to educate themselves now so they are prepared for when their child starts to apply to post secondary education. The sooner you start the easier it will be on your own pocket. I love how you say it is an investment in them to be critical thinkers. We forgot sometimes that it is not just a school education but a life education as well.