We asked Albertans what they’re saving for and received an overwhelming response from across the province. Paying for home renovations, family vacations, children’s education funds and starting a business were the top four reasons to save.
Throughout this four-part series on “What are you saving for?” we’ll provide a few tips and tricks to help you achieve your savings goals.
Given the high cost of studying in Canada, it’s not surprising this is a priority for Albertans. According to a report in Maclean’s, post-secondary education costs students living at home $9,300 per year, on average. For students in residences, the cost is almost $20,000 annually.
Not surprisingly, around two-thirds of Canadian students graduate with debt, the average amount being $22,084 according to a BDO/Ipsos poll.
Helping kids avoid graduating with significant debt is clearly a priority for many Albertans—but what’s the best way to help them save, rather than owe, for their education?
Calculate what you’ll need
The first thing to do is work out how much you think your children will need to get their undergraduate degree. Will they live at home or in a residence? Do you expect your child to make a significant contribution?
Research shows students who pay a portion of their tuition tend to value their education more, work harder and get better grades. So it makes a lot of sense that they contribute.
Having a ballpark figure of how much you’ll need is essential when working out your education savings goals. Include tuition, rent/residence fees, meal plans/groceries, books/materials and travel. Once you have an amount in mind (and this video can help), you can figure out the best way to reach it.
Registered Education Savings Plans (RESPs)
Given the considerable government contribution to this registered savings plan, starting an RESP is an easy decision for most families.
The Canada Education Savings Grant boosts your RESP savings by 20%, up to a lifetime maximum of $7,200. If you save $36,000 by the time your child turns 17, the grant increases that amount to $43,200 (the maximum contribution is $50,000). Families with low household incomes may also qualify for the Canada Lending Bond, which could top up your savings as much as $2,000.
As this is a registered account, all interest earnings are tax free (tax is only applied when your child draws from the account, at which point deductions will probably be minimal). Another advantage is that you won’t be tempted to take money from the account for other purposes, as you can’t make withdrawals until your child enrolls in a post-secondary institution.
The disadvantage of an RESP
If your child does not continue their education beyond high school, you’ll lose the government grant. The Canada Learning Bond will have to be paid back and you’ll be taxed on the money your investment has earned.
Tips for reaching your child’s education savings goals
Some research suggests that making regular, automatic savings contributions is the most effective way to build your child’s education fund.
By arranging to have a predetermined amount transferred into your RESP each month, your child’s education fund will grow without you having to think about it.
Make your RESP grow even faster by diverting your child benefit payment directly into it. Also, if your children receive cash gifts for birthdays or holidays, deposit the money into the RESP instead of their savings accounts.
Let’s get started
We can help you navigate the intricacies of starting up your children’s education fund with an RESP. We’ll help you set your goals and ensure you have a savings plan that’s right for your family.