It’s a dilemma familiar to many parents – how to save for the kids’ post-secondary education while managing the many other expenses that come with being a parent. It can be challenging to prioritize something that seems so far down the road when immediate priorities, such as clothing, daycare costs, sports programs and other expenses are important too.
Helping Canadians save
It’s not a new challenge. Education Savings Programs (ESP) have been in place as early as 1960 to help parents save, and in 1974, Registered Education Savings Plans were introduced, which allowed for contributions to be made to a registered account, where the interest earned is tax-deferred to the student. In 1998, the Canada Education Savings Grant (CESG)
was announced to encourage early saving, by adding a 20% grant to savings (up to $500 annually or $7,200 lifetime).
Overall the plan has been a success, with more than $55.9 billion in Canadian RESPs as of 2017, and more than 431,000 full and part-time secondary students using RESP funds to help finance their education annually. Now marking its 20th year, 52.3% of children under 18 have received a CESG, and over 36.5% of eligible children have received the Canada Learning Bond (CLB)
, an enhancement to the program introduced in 2005 to assist low income families.
The CESG benefits
The program has also been successful in encouraging parents to start their contributions early, to maximize the benefit. When the CESG program first got underway in 1998, parents typically started saving when the child was an average of 8 years old. By 2009, that average age had dropped to 3.6, meaning parents are accessing the grants earlier and receiving more total grant money. The earlier start also means that both the contributions and the grant money have more time to grow.
And for Canadian parents, there is even more room to build their education savings funds. With the average annual contribution at approximately $1,500, Canadians who increase their annual contributions to the maximum of $2,500 per child could add an additional $200 in grant money to their savings. The tax-deferred status of RESPs also allows for more growth and less tax obligation, as taxes will only be paid as the money is withdrawn by the student, and presumably at the student’s lower tax rate.
Parents who have been savings in vehicles other than RESPs should also consider moving these funds to their RESPs, as limits allow. The funds will continue to grow within the RESP, and the 20% grant and tax-deferred growth will provide a far superior return than most other investment options.
Education is the best investment
Knowledge First Financial was one of the earliest supporters of education plans in Canada, offering plans to help Canadian families save since 1965. When the CESG was first introduced in 1998, Knowledge First was there to help parents take advantage of this unique benefit only available through an RESP.
Today, approximately 60,000 students attend post-secondary school each year with help from a Knowledge First plan
. Many of these students were the first recipients of the Canada Education Savings Grant that started 20 years ago. Looking forward, CESG will continue to help families save for education as the program continues to grow.
So if you’re one of the parents that have been contributing to your child’s RESP since they were young – congratulations – education is one of the best investments a parent can make. If you’re a parent that wants to start saving, contact us
to learn more about RESPs and the Canada Education Savings Grant.