Despite a substantial increase of 40% in tuition costs over the past decade, many parents are still not taking full advantage of the benefits that registered education savings plans (RESPs) make available, according to Vancouver-based WealthBar Financial Services Inc.
In fact, 31% of parents are not saving for their child's post-secondary education whatsoever, according to a recent survey from Mississauga-Ont-based Knowledge First Financial Inc.
"We've heard from parents over and over again that they wished they started saving sooner or saved more each month," says George Hopkinson, president and CEO of Knowledge First. "Contributing early and often to an RESP is the best action a parent can take to prepare for the rising cost of post-secondary education."
This is especially helpful for students as a lack of post-secondary savings can result in serious consequences, Hopkinson adds: "No parent wants to see their child carry massive student debt after graduation."
View the slideshow for some suggestions to share with parents to maximize their child's RESP:
Making the most of RESPsSlideshow
Take the maximum advantage
Parents should put away $208.66 a month per child if possible — totalling $2,500 a year — to qualify for the maximum annual Canadian Education Savings grant, WealthBar recommends.
Optimize provincial grants
Six in 10 parents are not utilizing the various grants available within an RESP, according to Knowledge First’s recent survey.
In 2015, for example, British Columbia introduced the B.C. Training and Education Savings Grant. The $1,200 grant is available to provincial residents born after Jan. 1, 2006. However, “B.C. parents said they were not aware the grant can only be claimed between the child’s 6th and 9th birthdays,” Knowledge First says.
Provincial grants vary.
Remember the “35-year rule”
Parents need to keep the “35-year rule” in mind, WealthBar recommends. This means that an RESP has a shelf life of 35 years; so, children have the opportunity to obtain work experience or travel for a few years after
Pay a lump sum
If parents — or a child — receive a lump sum of cash, it’s better to “front-load” an RESP, WealthBar suggests. This way, the money has more time to earn compound interest tax-free.
Look to advisors for help
Eighty-eight per cent of parents who participated in the Knowledge First survey said they require the application process to be easy from an administrative perspective while 82% say they want advice from a specialist to simplify the process. Thus, advisors have a critical role to play in helping parents save for their children’s future.
Watch the slideshow on your computer or tablet.
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