Education will open many doors for your children. But with education costs rising faster than the cost of living, those doors can be expensive to open. That’s why now, more than ever, it’s best to have a plan—a savings plan.
The first year of tuition for students enrolling in a Canadian university without residence in 2025 is estimated to cost as much as $13,071, which is $54,135 over a four-year program. The same first year of tuition for students enrolling in a Canadian university in 2000 cost $3,380, or $13,520 over four years. That’s a staggering 300 per cent increase in tuition fees over 25 years.
Now that you have picked yourself up from the floor, dusted yourself off and taken a cool drink of water, here are five ways in which Prospera Credit Union family banking relationship manager James McCormick, who works out of the Kelowna Mission Park office, advises his members about saving for their offspring’s education.
1) Starting early means saving more
If you start saving when your child is born, the greater time frame will allow you to save more money for their education. With an RESP, you can earn more money in the end, too, with government grants and compound growth, which is the financial “snowball effect” that occurs when you put your money in an investment that delivers a return and then your earnings are reinvested. When you continually reinvest your returns to produce even greater ones, that’s compound growth.
This benefit is something you can take advantage of during the entire life of your RESP. The longer you invest your money, the greater the opportunity for growth.
2) Use government grants
Only an RESP is eligible for government grants, which truly makes it the best way to save for post-secondary education. The Canada Education Savings Grant can contribute up to $7,200 to your child’s future. Depending on your financial situation and your province, other education grants can add even more.
With the Canada Education Savings Grant (CESG), the Government of Canada could provide up to $7,200 over the lifetime of your RESP. You will receive 20 per cent of your annual contributions, up to $500 per year, on the first $2,500 you contribute. Depending on your income, the Additional Canada Education Savings Grant (A-CESG) can add 10 to 20 per cent more on the first $500 that you contribute each year, up to an extra $100 annually.
3) Canada Learning Bond
To help low-income families get started with their education savings, the Government of Canada will make an initial Canada Learning Bond deposit of $500 into your child’s RESP. Additional deposits of $100 are automatically made to the RESP each year up until your child is 15, to a maximum of $2,000. No personal contributions are required. The Canada Learning Bond is available to children who are Canadian residents born in 2004 or later, and have a social insurance number.
CLB is retroactive, and payments accumulate each year the eligibility criteria is met until the RESP is opened for a child until the child turns 21. Families who qualify for the CBL have, on average, less than $45,000 in annual household income. Learn more about eligibility requirements.
4) British Columbia Training and Education Savings Grant
B.C. residents can earn more with the British Columbia Training and Education Savings Grant (BCTESG), a one-time grant that provides parents with an additional $1,200 for each child born after Jan. 1, 2006. No matching or additional contributions are required. You just need to apply for this grant when your child is between the ages of 6 and 9.
5) Tax benefits of an RESP
As you contribute money into an RESP, your RESP provider will invest those contributions on your behalf. Over time, those investments will earn you income that is tax-deferred. That means you will pay absolutely no tax on the money your RESP earns as long as it remains in your plan.
An RESP allows you to save up to $50,000 as a tax-deferred investment, which could be higher than the available amount in your Tax Free Savings Account. Plus you receive the benefits of the government grants. If you contribute the maximum amount per child, you will maximize the tax-deferred benefit of an RESP.
“Your approach to saving for post-secondary education will be as unique as you and your child,” McCormick says.
The key is to choose an approach that works for you and get started. The sooner you start, the sooner you’ll start earning compound returns and qualifying for education savings grants. McCormick advises his members to set a budget. As a parent himself he fully understands the many demands on your money—from mortgage or rent payments to household bills to saving for your own retirement.
McCormick added that you can maximize your child’s education savings grants by contributing $2,500 per year, which is $208 per month. While saving the maximum amount is a definite benefit, it’s important to balance what you want to achieve with what you can afford. Set yourself up for success by setting a realistic goal—one you know that you can attain.
Some things to consider and discuss when establishing your goal: Is your child planning to take a four-year program? Will your child live with you during school or require residence? Will your child have a part-time job while attending school? How old is your child? How many years before they attend university or college?
Every student, every parent and every family is unique, with different preferences and needs, which is why Prospera’s family banking relationship managers like McCormick customize each client’s RESP investments.
This article is written by or on behalf of the sponsoring client and does not necessarily reflect the views of Okanagan Edge.
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