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Saturday, September 18, 2021

Pattie Lovett-Reid: Our grandchildren don’t need more stuff. That’s why we gift them RESPs instead.

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HUNTSVILLE, ONT. — We are the type of grandparents that want the world for our grandchildren. That doesn’t mean they need more stuff. To us it means they need some form of a post-secondary education.

We truly believe our grandchildren don’t need another piece of designer clothing, expensive toy or trinket that may soon be forgotten after their birthday or other special gift giving occasion. We hope to participate in a gift that keeps on giving: an education.

The reason for this? Education is often thought to be the great equalizer.

So — spoiler alert — our grandchildren will be getting contributions to their Registered Education Savings Plan (RESP).

A recent survey by Canada Life found that 92 per cent of Canadians are aware of RESPs, however, less than half (49 per cent) are currently using the saving tool.

This concerns me.

Post-secondary education is expensive and recent graduates will tell you the debt burden is a heavy load for a recent recent grad as they enter the workforce.

According to Knowledge First Financial, it is expected that, by 2030, the average cost of a four-year post-secondary education degree will be approximately $111,698 with residence, and $55,548 without.

Canada Life found those that did contribute to RESPs have a total average contribution of about $22,800, with the median monthly contribution being $210.

Now, to be fair, an RESP isn’t the only route to go. The survey found  that 39 per cent established in-trust or bank accounts in their child’s or grandchild’s name, and 27 per cent used tax-free savings accounts.

Both are great options,however, if you save via the RESP you can maximize your investment.

  1. The government will match your contribution up to $500 per year for a lifetime total of $7,200 per child, via the Government Education Savings Grant.
  2. The savings grow tax free within the plan. Your money is not taxed, but grants and growth accumulated within the plan are taxed at the student’s rate. However, as we know, most students will have little or no income resulting in the money being withdrawn tax-free.
  3. The money saved within an RESP can be used for books, living expenses, course materials and other things in addition to tuition.

One final thought: our strategy is to invest early and often while at the same time use this gift as an opportunity to talk to children and grandchildren about their future, why we care and how much opportunity lies ahead.

And in case you are wondering… yes, there will be a small token given alongside the contribution. We still want to have a little fun.

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