Educational savings: The benefits of starting early

Thinking about the cost of your children's education can be a recipe for financial stress. On top of tuition, there's a whole range of school fees that we tend to underestimate. That's why it's a good idea to get into the habit of saving early. Even a little can go a long way. Here are some pointers on how to get started.

If you're not prepared, the high cost of education can catch you off guard and throw off your household budget, especially once your child enters high school.

Whether they're enrolled in public or private school, expect significant expenses. For example:

  • Tablet for distance learning
  • Science supplies
  • Sports equipment
  • Extracurricular, sports and cultural activities
  • School trips

Regular savings are key

Desjardins financial planner Angela Lermieri* thinks you should start saving for your child's education as soon as possible. It can be as simple as a regular account for school fees.

If you have room, you could also contribute to your TFSA and grow your tax-sheltered savings.

"A little goes a long way. When you save regularly, it adds up. As you get used to putting money aside on a regular basis, it becomes second nature," she says.

The personal finance specialist suggests building the savings into your annual budget, scheduling automatic payments and earmarking certain types of income such as the Family Allowance (Quebec), the Canada child benefit (federal) and tax refunds for education. And as she points out: "If the costs turn out to be lower than expected, you can always use the money for something else."

If you do end up with a surplus, you can put it to good use elsewhere or invest it in a Registered Education Savings Plan (RESP) for your child's postsecondary education.

RESPs: An attractive solution

Registered Education Savings Plans - This link will open in a new window. are designed to help pay for postsecondary education. Their main selling point is government contributions. The contributions are calculated based on the amount of money you put into the plan and your net family income.

For example, by contributing $1,000, you are eligible to receive between $200 and $600, depending on where you live and your net family income. In Quebec, government grants are worth 30% of the amount you invest.**

What's more, low income families may qualify for the Canada Learning Bond (CLB) - External link. This link will open in a new window. without even putting money into an RESP.

Focusing on school

Parents, grandparents, aunts and uncles--anyone who wants to help cover the cost of a child's postsecondary education can open an RESP. It can help students avoid having to take out loans or work while they're in school.

In order to take advantage of the government contributions, you can open an RESP as soon as your child is born and contribute to it as long as they are a resident of Canada and have a social insurance number. The government grants continue until the child is 17 and it's possible to recover grants for missed years by increasing your investment.

How much should you budget for your child's education?

In 2018-2019, Statistics Canada estimated that the average annual tuition for undergraduate students in Quebec was $3,851. Plus there's housing, food and other basic expenses. You can use an online calculator - This link will open in a new window. to determine how much you need to save for your child's postsecondary education.

An RESP is opened in the name of the child who is the beneficiary. The subscriber--the person who opened the account--retains ownership of the RESP. All earnings are tax sheltered until they are withdrawn. As soon as your child enrolls in a postsecondary institution (CEGEP, university, specialized postsecondary institution), you can withdraw the money for their benefit.

The account can remain open for 35 years and, under certain conditions, you can transfer it to another beneficiary if your child decides not to continue their studies. Either way, RESPs are an excellent investment.

For more information or to open an RESP, contact your advisor or see Registered education savings plan - This link will open in a new window..

* Financial planner and mutual fund representative for Desjardins Financial Services Firm Inc.

** The lifetime maximum per beneficiary is $7,200 for federal grants and $3,600 for Quebec grants. Yearly maximums also apply.

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