Exploring the Value of RESPs during Education Savings Week

Making post-secondary education accessible to all Canadian families is the mission of CST Consultants Inc. This is why CST Consultants is so pleased to support this year’s Education Savings Week (ESW), which takes place from November 18 to 24th.

This week-long event is part of the roster of activities occurring during the month of November, which the Financial Consumer Agency of Canada has declared “Financial Literacy Month”.

While Canadians are taking the time to focus on their budgets this month, ESW organizers are also encouraging families to begin building a comprehensive savings plan to save for the future costs of their children’s higher education. The theme of this year’s ESW is “Start Good Habits Early”.  One of the integral parts of this message is setting up a Registered Education Savings Plan, or RESP, which is an investment vehicle specifically created to help Canadian families save for post-secondary education.

Higher education is worth the money

Research from the University of Ottawa’s Education Policy Research Initiative suggests that higher education is linked to higher salaries across the career spectrum. Their 2016 study looked at income data for 620,000 graduates of 14 Canadian universities and colleges between 2005 and 2013. Study subjects who graduated from university in 2005, on average, made $45,200 in inflation-adjusted terms in their first year after school. That figure rose every year after that, growing by a total of 66 per cent to $74,900 in 2013.

The cost is growing
Statistics Canada pegged the average undergraduate 2018/2019 tuition fee at $6,838, but the Canada Student Loans Program projects that today’s toddlers will pay a whopping $17,000 in tuition per year by the time they begin their post-secondary education in 2035/2036. This figure does not include books or living expenses incurred during the programs of their choice.

There’s no question that investing early in an RESP can offset some of these costs and help your child meet the challenges of the twenty-first century economy.

Saving early through an RESP
National ESW reminds us of the importance of establishing an RESP early — by as much as 15 or 20 years — to take advantage of the magic of compounding. RESPs have the potential of benefitting from compounding every year, so it makes sense to start an RESP as soon as possible.

Benefit from Government Grants
The Canada Education Savings Grant (CESG) can also add significantly to your savings.  Offered by the government of Canada, the basic CESG is available to any Canadian resident who opens an RESP. The basic grant matches 20% of the first $2,500 you contribute to a child’s RESP each year, up to a lifetime maximum of $7,200 per child. That works out to an extra $500 paid directly into your child’s RESP every year.

If your family’s income falls below a certain level, your child’s RESP might qualify for 10% to 20% in Additional Canada Education Savings Grant (ACESG) on top of the basic 20% CESG. This works out to 10% to 20% additional grant contributions on the first $500 you save in your child’s RESP each year that you qualify for ACESG. There is a total lifetime maximum payment (CESG & ACESG) of $7,200 per child that can be accessed.

Canada Learning Bond  provides additional support for families with lower income.  They can receive $500 in the first year when the RESP is opened and an additional $100 per year for each year they qualify until their child turns 15.  This could add up to an additional $2,000 in grants towards their child’s RESP.

Helpful Tips to Save through an RESP
Keep track of your spending habits
This seems obvious, but it’s surprising how small expenditures add up. What about the coffee you buy every day on the way to work, the gym membership you don’t use, the subscriptions you don’t read? Trimming unused luxuries is always better for every budget.

Save each day’s loose change
People carry less cash these days — instead, we depend on debit and credit cards and online payments. But storing away the coins you might carry with you daily will build up over time and depositing them in an RESP account ensures that nothing is ever wasted.

Have your child help contribute to their RESP

At first, you can add a portion of your child’s birthday and holiday money to their RESP. As they grow, they can work part-time during the school year and perhaps full-time during the summer and contribute a portion of their earnings to their RESP. This not only helps children contribute to their own education, but also develops their own budgeting muscles, which they’ll use all their lives.

ESW is not the only time to educate yourself on RESPs, but we hope that it encourages even more parents to get involved in creating an education savings plan for their children. Regardless of income bracket, RESPs serve as a convenient and flexible way to make your child’s future education more affordable.

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