Here’s hoping that it will be a boost for RESPs.
Pop a Valium and listen up.
Paying for your kid’s post-secondary education is going to be really, really expensive. I have a 6 year old so I think about this a lot. Tuition and books will run you about $7,000 today. But when you add some more on to account for the requisite buses and beers, that number jumps to at least $10,000 – and that’s if they live at home with you. Tack on a modest 3% inflation rate to that, to project 15 years out, and you’re looking at $16,000 a year, for probably four years. That’s a total of $64,000.
The $64,000 question: Is the Canada Child Benefit part of the answer?
This is, quite literally, the $64,000 question. And it is better to ask it – and ideally answer it – as soon as possible to give you as much time as possible to save. Perhaps the new Canada Child Benefit will help.
The Canada Child Benefit, or CCB, is a new program aimed at helping families with the cost of raising children today and into the future. The cheques (or direct deposits) arrived in July and I’m optimistic that the money will prompt at least some families to open up a Registered Education Savings Plan for their kids.
A new Ipsos poll, commissioned by a leading RESP provider Knowledge First Financial, found parents plan to spend 37% of the benefit on day-to-day expenses, and 22% on savings for post-secondary education. Hooray.
RESPs provide big benefits for Canadian families
I am a big believer in the RESP, for three reasons: First, education is getting more expensive every year and kids will likely need help to avoid hefty loans. Second, the federal government gives you a juicy grant – 20% of your contribution, or up to $500 per child per year. (Now that Bernie Madoff is in prison, where else can you get a guaranteed 20% return on anything?) And third, the RESP encourages you to start saving now, now, now so you get the biggest benefit from the magic of compound interest.
The maximum Canada Child Benefit will go to families with incomes of under $30,000 per year. For them, it is already very tough just to make ends meet, let alone carve out some carve for savings. But the launch of this program is a great reminder for all of us parents to open up an RESP and then get creative with our budget and think of ways to increase income or cut expenses to make the contribution and give our kids a leg up later in life.
You can check out the government’s calculator (here) to figure out how much CCB your family is entitled to. If you are in one of the higher income brackets, don’t be surprised if you find that you will get less under the new system. It takes income into account, so the benefit declines the more money you make – which is as it should be, in my opinion. This new program is also simpler for tax filers– the money is tax free, and you don’t have to keep track of receipts for arts and fitness activities.
Education seen as key to success in job market
Post-secondary education is becoming increasingly important. The Ipsos / Knowledge First Financial poll found that three in ten (29%) parents said that the most important reason post-secondary education is worth the investment is because it is a basic requirement in today’s job market. Others believe the most important reason is because it helps to develop practical/job skills (23%).
Remember, too, that the money saved in an RESP [can be used at lots of different institutions – not just Colleges and Universities.] Ballet school, culinary programs, and even the “Career School of Hair and Nails” are on the approved list.
In the event that your child doesn’t attend a post-secondary program, your money is not lost. The rules and penalties differ depending on how your RESP is set up, but even if you decide to close the RESP, the contributions you made are yours and you can get them back, minus the government grants. That would likely be a last resort anyway, as you may be able to replace the beneficiary, or even transfer the money to your RRSP.
Education is worth it, but it is going to be expensive. The new Canada Child Benefit isn’t a magical solution, but I hope that it is a catalyst for all parents – regardless of income – to talk about what they can do to help set their kids up for success.