Wednesday, September 25, 2013

Saving for Your Child's Education with an RBC RESP #SaveWithRBC

When I started university, back in 1988, my tuition was $582 each semester. And I think that amount included all my fees as well. It was a different time, and I was able to get through 5 years with just a single semester's worth of student loans.

Now in 2013, I just spent close to $3000 on our Teen's first semester at college. And that does not include his room and board. Things are a lot more expensive now, and I don't even want to think what it will all cost once Little Boo gets there in 10 years!

I was really lucky when I went to university, because a) the costs were so much lower, and b) I was able to live at home during my studies. (The one student loan I had was for the brief time I tried out living in an apartment.) These two factors, combined with my summer and part-time jobs made it possible for me to graduate essentially debt-free. But that's simply not a realistic expectation for our kids today. It's hard to imagine a summer job that would cover their costs.

Currently we are contributing monthly to an RESP for Little Boo. We opened it when he was an infant, and have the contributions taken automatically on a monthly basis. We chose monthly because we were both on a monthly pay cycle, so it made the most sense for us. I really like that the money is transferred to the RESP on payday each month, since not only do I not have to remember to make the contribution, but also it's like I never see the money anyway. Takes some of the stress out of the saving!

Another thing we try to do is to use some of the money he might get for birthday or Christmas presents, and add that to his education savings. Consider striking a deal with your child where half of all gifted money is put into savings and half he or she gets to use towards a special purchase. Or whatever ratio works best for your family. The idea is to contribute to his future (reduce future debt) and teach him about the importance of saving money at the same time. Show him how it's done.

A big benefit of starting to save early is that it allows us to take full advantage of "free money" available to us through the government's Canada Education Savings Grant (CESG) program. With the CESG, for an eligible beneficiary under the age of 18, the government matches 20% on the first $2,500 contributed annually to an RESP. The maximum total CESG the government will give, up to age 18, is $7,200 per beneficiary. Of course, the earlier you start your contributions, the more time you have to save up for that first tuition bill, and the more time you have to accumulate interest. (The CESG contributions are invested as well!) Any interest earned in the RESP is tax-deferred until the amounts are withdrawn, and then will be taxed as your child's income - lower tax rate and may be totally or mostly off-set by their personal exemptions.


RBC offers a variety of options for setting up your RESP, and they make it super easy to contribute with the RESP-Matic program. RESP-Matic allows you to choose an amount and frequency of contributions (anywhere from weekly to yearly), and the contributions are automatically debited from your bank account. I really find that to be the easiest and least painful approach to saving, whether that saving is for an RESP, RRSP, or even a vacation fund!

RESPs can be used for any type of post-secondary training, even non-credit courses. And, should your child not use the funds, you can even use your contributions and earnings to fund your RRSP. 

Would you like to join in a conversation about saving for your child's education? Join us for the #RBC_RESP Twitter Party, Thursday, Sept. 26, at 9:00pm EDT. We’ll be chatting about how easy and beneficial it is to start saving early, and how much “free” money you can turn your savings into, by simply setting aside a small monthly amount! Participate in the conversation, and you’ll be entered to win the fabulous grand prize - $1,000 to put towards your child’s RESP! Check out the full Rules and Regulations here. (No RSVP required.)

You can follow RBC on Twitter or visit them at for more tips on building those savings.

Disclosure: I am part of the RBC RESP blogger program with Mom Central Canada, and I receive special perks as part of my affiliation with this group. The opinions on this blog, as always, remain my own.

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