RESP's Worth The Investment

With students protesting in the streets expecting society to pay for their post-secondary education, there are options available to young families starting out. When it comes to saving for anything, always best to start early because you'll hit bumps along the road and sometimes you may find yourself suspending saving. But once back on track, you resume.

Circle of life and it's no different with education.

Education costs are increasing (Quebec will discover it can't run against the grain) and if post-secondary education is important for you, then strongly consider investing in a Registered Education Savings Plan. It's like an RRSP but for education.

Take charge of YOUR LIFE. In this way, I support the government initiative.

Monthly payments can be as little as $50 or $100. Over 18 years, using $100, you have saved $21 600 not including interest. Assume a very modest 5% and you get another $1000. More importantly, as you'll see later, the government provides a contribution further adding to the load.

If you're two people, and agree to invest $150 (get your grandparents involved if you can!) and the amount pushes through $34 000. In Canada, that's gold. Once you get on a routine (that is, adjusting to life with $100 less in your pocket), the whole process becomes almost painless.

I know because we've been doing it for eight years now. We match what my mother invests. Education should be a family matter.

A few friends of mine have opted out of this investment vehicle for some inexplicable (and financially illogical perhaps) reason. They feel they can save on their own.

However, there are three important features why RESP's are no-brainers.

1) It's a forced savings and becoming more and more flexible. After 20 years, if you're child decides to go to an American university, it's a helluva lot less stressful to help out when you have the funds.

2) It's a tax-sheltered plan. That is, all monies earned over time do so tax-free. Not only that, once money is withdrawn it's taxed in the hands of the beneficiary - that being the child. This means they'll be in a much lower tax bracket than if you had chosen another route (likely at the highest marginal rate). Irrational to not consider this if you ask me.

3) Government contribution. As in, the government kicks in 20% over 18 years with a maximum of $9000 (I think. It was $7200 for me but rules may have changed). If you opt out of this, you basically leave $9000 on the table not including interest or dividend earned. You can never make that up. It's an excellent incentive meant to have you save for education.

Keep in mind only children under 10 are eligible and like RRSPs the trick is to start as early as you can to get the full benefit.

Planning for the future? Look at RESPs. As for which ones, I'd focus on Scholarship Trust Funds or other competitors. Find one that fits your needs and objectives.

You're welcome.