Start Your Children Earning Money from Birth
I recently became a grandfather again (for the 10th time) and I thought it appropriate to talk about how you can have your children earning money towards their post-secondary education right from birth.
All you have to do is open a Registered Education Savings Plan (RESP) for your child as soon as you register the birth and obtain a Social Insurance Number. For every dollar you contribute, your child will earn an additional 20% (or more depending on your income) up to a maximum of $7200 without doing a thing. This is thanks to the Canada Education Savings Grant (CESG) that the federal government provides to help with your child’s education. Not bad!
Lets look at the numbers to see how this might play out. The average annual cost to attend university and pay for accomodation and living expenses today is approximately $20,000 per year. In 18 years that cost is expected to be close to $30,000. If you contribute $2,500 ($50 per week for 50 weeks) each year and the government gives you another $500, that’s $3000 per year that will be invested in your child’s education. After 17 years that investment will be worth approximately $90,000 which will fund three years of their education and living expenses. And if you increase your contribution each year by only 2% to account for inflation, that will fund almost a full 4 year program.
Compare that to taking out student loans to cover the cost where you’re looking at starting your child off in life with a $100,000 debt and loan repayments of upwards of $1,300 per month for the next 10 years which will cost over $50,000 in interest based on today’s interest rates. That’s a tough way to start out.
The point is that a little bit of a sacrifice now will save a lot of pain later on for both you and your child. Suggest that your friends and relatives who want to give your children gifts consider giving a gift of cash for their RESP. It will be appreciated much more in the long run.
So here’s my advice to all you new Moms and Dads. Put the money you used to spend on going out on dates into your child’s RESP. You’re going to be too tired to want to go out anyway.
And don’t just put the money into a savings account. Invest it into a well diversified growth portfolio for the first 10-12 years and watch it grow. Don’t be upset when you see the value dropping due to market swings (and it will at some point) because you have time to make it up before your child needs to withdraw the money for college or university (it can also be used for other educational purposes as well, such as a trade school). However once your child reaches their early teens, you will need to change it to a more conservative investment portfolio. You can open an online RESP account with most financial institutions but do your homework first as the cost and contribution minimums can vary dramatically. There are different types of RESP’s on the market ( Individual, Family, and Group RESPs) all of which have different rules and features associated with them. The following website will give you some basic information to start your research ( https://www.canada.ca/en/employment-social-development/services/student-financial-aid/education-savings/resp/choose-plan.html ). You may also want to talk with a Certified Financial Planner who will help guide you through the process.