RESP: The #1 Choice of Parents Saving for Post-Secondary Education
August 13, 2019
With back-to-school season around the corner, parents are starting to prep their to-do lists and bracing themselves for the bills to come. And while families with younger children can expect expenses ranging in the hundreds of dollars, many parents with college students will have to tighten their belts.
According to the latest Education Savings Barometer released by Kaleido,1 it comes as no surprise that the vast majority of parents consider their children’s post-secondary education to be a priority, with 97% of parents saying it’s very important. But education doesn’t come cheap and this priority is a growing source of concern for 70% of the parents surveyed, who estimate the costs of post-secondary education at an average of $28,780 for one child alone.
So in this pay now or pay later scenario, it’s not that surprising to see most families choose to plan ahead, with an encouraging 65% already saving for college; the majority of whom have chosen to do so with an RESP, specifically designed to accumulate funds for post-secondary education.
So why is the RESP the number one choice of parents? Let’s explore what makes this investment so appealing!
1. FREE GRANT MONEY ANYONE?
The best part of the RESP is the grant money; and it’s the main reason parents choose this savings option.2 Makes sense, since the RESP is the only financial product eligible for education savings grants.
So how much are we talking about exactly? It’s simple enough, the federal government offers the Canada Education Savings Grant (CESG), a grant that matches 20% of the first $2,500 contributed per year. In Quebec, children benefit from an additional 10% thanks to the Quebec Education Savings Incentive (QESI), one of the only provincial grants out there. This means a minimum 30% in grant money, regardless of family income―quite a return for any investment!
Families of more modest means are even eligible for additional sums under both programs, as well as the Canada Learning Bond (CLB), a grant that can reach up to $2,000 per child. All in all, grants can reach the hefty sum of $12,800 per child3 and always grow tax-free, like your RESP contributions.
While the grant money is the main reason parents are attracted to the RESP, this investment has several other advantages to consider.
2. RRSP OR RESP... WHY NOT BOTH!
Despite the fact that education is important, some may feel retirement is their priority, but here’s a fun fact: you can cover both bases by first investing in the RESP.
When an RESP reaches maturity, contributions are returned to the person who opened the plan, tax-free. Parents can then choose to add this sum to their child’s education fund or transfer it to an RRSP as a nest egg for retirement.
3. SOURCE OF MOTIVATION
The RESP has benefits for students too; according to the Barometer, 70% claimed that simply having an RESP was a decisive motivating factor during their school career.
Parents aren’t the only ones concerned by the costs of education; this uneasiness extends to two thirds of students. Funding from an RESP relieves the financial strain of education costs, allowing students to focus on their studies while graduating with lower student debt. This is of no small consequence when considering 79% of students hold part-time jobs and work over 10 hours per week.4
4. FREEDOM OF CHOICE
With an RESP, parents can enjoy peace of mind knowing their child will have the freedom to choose the school career their heart desires. RESPs qualify for educational assistance payments (EAPs) for all levels of post-secondary education, whether university, college, trade school, vocational training, CEGEP... you name it!5 These studies can be pursued anywhere in the world, and the EAPs can be used to cover any and all education-related expenses, such as tuition, housing, groceries, books, etc.
In sum, the RESP has a number of benefits for families. This sound investment decision and proactive initiative allows children to dream big and students to pursue post-secondary education without being buried in both books and bills!
1. Education savings Barometer 2019: a web panel survey conducted in collaboration with the CROP polling firm from November 8-26, 2018, using a sample of 1,030 Quebec residents.
3. The Canada Education Savings Grant (CESG) rate is 20% to 40% based on adjusted family net income. The annual limit is set at $600 and the lifetime limit is set at $7,200 per beneficiary. The Quebec Education Savings Incentive (QESI, only available in Quebec) rate is 10% to 20% based on adjusted family net income. The annual limit is set at $300 and the lifetime limit is set at $3,600 per beneficiary. The Canada Learning Bond (CLB) is up to $2,000 per beneficiary and is offered for children born after December 31, 2003, and whose families meet the financial criteria. Certain conditions apply; refer to our Prospectus.
4. Education savings Barometer 2019: a web panel survey conducted in collaboration with the CROP polling firm from November 8-26, 2018, using a sample of 1,030 Quebec residents.
5. Provided the program chosen is qualifying educational program or a specified educational program, as defined under the Income Tax Act (Canada).