4 Reasons Why You Should Save For Your Child’s Education
Planning For The Future No matter the age of your kids, it’s never too early to start saving for their post secondary education. In fact, the earlier your start, the more free money you’ll earn!
You know it! The cost of education has increased by more than 100 percent since the 80s. Thankfully, parents across Canada have access to Registered Education Savings Plans (RESPs) to help save for their child’s future education costs: tuition and books at accredited trade, university, and college programs.
Experts in Canada are projecting education costs could reach $115,000 by 2035. No wonder talks of tuition scare so many parents!
A recent survey from Ipsos and Knowledge First Financial indicates that when parents haven’t saved enough, they and their children are turning to debt to fund the cost of education. Not only is that a huge financial debt load, there can be life-altering mental health challenges for new graduates, and parents are pushing out their retirement plans.
Savvy planning can reduce the fear. I get it; budgets are tight for new parents between diapers, mortgage, and credit card payments. But here are four reasons you should make room in your budget and start saving for your child’s education today using an RESP.
1. A little money today goes a long way
It only takes $50 per month of RESP savings today to pay for one year of school for your child 17 years from now. And to pay for the whole cost, parents should set aside $200 per month into their child’s RESP.
Compounded interest and reinvested returns is what grows the money when it’s invested (it isn’t going to sit under your mattress!). It earns interest and returns on the original amount, then interest and returns are earned on that total larger sum and so on.
So, trade in that vente latte for a tall, and cancel unused memberships to scrounge up extra savings.
2. RESPs earn free money
Everyone loves free money and RESPs qualify for free federal and provincial government grants!
The largest grant is the Canada Education Savings Grant (CESG), worth $7,200, followed by smaller provincial grants in British Columbia, Saskatchewan and Quebec. And lower-income families will receive extra savings dollars through the Canada Learning Bond.
These grants have specific windows of opportunity to apply, so don’t miss out! An RESP expert can help you navigate these restrictions.
3. You can invest the RESP money in whatever you want
RESPs can be invested in mutual, index or exchange traded funds, pools of funds, stocks, or bonds. If you’re not an investment advisor, an RESP professional can assess the appropriate risk level for the money.
Keep in mind that you don’t want to take on too much risk because the window of time to grow this money is less than 17 years.
4. If you don’t save, your kids will live in your basement
Imagine your children don’t launch until after they pay off their loans. That’s well past the age of 30. Forget “Freedom 65,” it will be “Freedom 95!”
The only thing you should be totally lazy about when it comes to your child’s RESP is putting your regular contributions on autopilot. Yes, I’m talking about setting up automatic contributions so every time you get paid, you make an automated RESP contribution of whatever amount you choose.