One thing that I just do not understand is why more people don’t have Registered Education Savings Plans established for their kids and grandkids.
Think about it for a moment. Nowadays how many careers are there that a person can walk into right out of high school?
Not jobs, mind you. Most times a person willing to work can find a job, as long as they are not too fussy about what they do, or how much it is that they get paid.
I mean careers. A meaningful and enjoyable vocation that sustains and nourishes you and your family. How many of those are launched with just a high school education?
Don’t fool yourself. Sure, there are a few dramatic success stories of people who have accomplished great things despite the lack of formal education. That doesn’t change the fact that employers are looking for credentials, and that includes education.
Now when I say “education”, I’m not limiting myself to speaking only about university. Sure we will need veterinarians and dentists and teachers in the future. But we’ll also need electricians and plumbers and welders and millwrights. And all these people are going to need training.
Already the blue collar job is showing signs of becoming extinct. We don’t have ditch-diggers anymore. We have heavy equipment operators, and there are even training schools for that.
Now think about 10 or 20 years from now. In the world of the future, how important do you think it’s going to be to have an education in order for the kids of today to have the careers that they want?
But here’s the thing. Education costs money. And it’s getting more expensive.
Currently 60% of undergraduate students enter the workforce with an average debt of $27,000. Starting out life in debt is something that has a lasting impact on a person.
But that’s just the situation as it stands now. It’s only going to get worse. Since 1990 the average tuition and compulsory fees for undergraduates has risen at 3 times the rate of inflation. By the year 2025 the all-in costs – tuition, books, food, rent, etc. – of a four year education will be about $100,000.
Despite these facts – that virtually all careers will require an education, and that education is going to be expensive – far too few Canadians are saving money now for the future education costs of their progeny.
And that just doesn’t make any sense given that the government has given us such a beautiful vehicle to save for education expenses – the Registered Education Savings Plan.
In a nutshell, if you use the RESP the government will give you free money for your kid’s education. Why would you say no to free money?
There are a few different components to the RESP. The bulk of the RESP advantage comes from the Canada Education Savings Grant, whereby the government matches your contributions. You can get up to a total of $7200 in grant money.
But while the education grant requires that you also fund the education plan, not even the lack of money on your part should prevent you from establishing an RESP.
There is also the Canada Learning Bond, where low income families can get up to $2000, and no contribution is required.
And if your child was born in Alberta, there is the Alberta Centennial Education Savings Plan Grant. Basically more free money. This time, just for being born in Alberta in 2005 or later.
When my kids were born I ran the numbers on how much it would take to fully pay for their education. Since I started early, and take full advantage of the RESP, I only need to put in $250 per month.
So tell me, which option do you prefer? Pay $250 a month now? Pay $100,000 over 4 years later? Or saddle your kids with monster student loans just as they are starting out in life. It’s your choice.
One thing to be aware of – there are different types of RESPs. I really like the ones where you control the money, and you get to make your own decisions. This is a flexible plan
But I really do not like the ones where your money gets pooled in with all the other families, and you have to follow certain rules. With this type you pay your money, and you take your chances. I have written on the various problems with the pooled plans in the past. If you would like a copy of those columns, just email me.
To recap: your kid is going to need an education, that education is going to cost money, and the RESP is a beautiful tool to provide that money.
So if you really want to do something nice for your child or grandchild this Christmas, don’t buy them a bunch of toys. Buy them just a couple of toys, and put the rest of the money into an RESP. Buy them an education instead.
