Education Is the Best Gift You Can Give Your Child


You might think the best gift you can give your child is what they have asked for on their birthday and Christmas wish lists. While material gifts are bound to put a smile on their face, there is a long-term gift that can be even better: access to education. While not every parent can afford to pay for their children’s post-secondary education as those costs arise, they can put a plan in place to cover them in the years to come. More specifically, parents, caregivers, friends, and family can set aside some of their earnings into a Registered Education Savings Plan (RESP). 

What Is an RESP?

An RESP is a savings tool that allows your children to take advantage of government grants, investment income, and tax-sheltered growth by making regular contributions that can help pay for their post-secondary studies. While there are many savings options out there, this is one of the few set up expressly for post-secondary education. You can open a plan and begin contributing at any time. It will then remain open until you close it, use the funds, or until it has been open for 36 years. 

Why Open an RESP?

Post-secondary education can be costly, especially when you’re trying to come up with annual tuition fees for more than one child. Having an RESP for your child or children can mean that they can tap into the available funds when the time is right, without it affecting your bank balance. We’ve included a few of the many benefits of an RESP below. 

Government Grants

Family contributions can make a great deal of difference to a student’s college life experience. However, it’s not just your family and friends contributing – it’s also the government. When you open an RESP, you may become eligible for the Canada Education Savings Grant (CESG). With this grant, the Canadian government matches 20% of your contributions up to $500 per year and a lifetime maximum of up to $7,200 per child. 

The Canada Learning Bond is also available for lower-income families, alongside provincial government incentives for those residing in British Columbia and Quebec. Post-secondary costs are rising, so having government grants available may make a world of difference to your child’s educational opportunities. 

Tax-Free Investment Earnings

While your investment earnings remain in your RESP, they grow  tax-free. By not paying any tax on those earnings, you may be able to grow your child’s post-secondary savings faster. 

Various Plans

Every family dynamic is different, which is why there are a variety of RESP options to suit each unique situation. Families with more than one child, stepchildren and adopted children included, may benefit from a family plan. With this plan, you can name one or more children to receive the savings. However, it can only be opened by a blood relative, such as a parent or grandparent. If you are not related to the child for which you’re opening an RESP, you can select the individual plan. You can name one beneficiary on this plan, and you don’t have to be related to them. 

Anyone who wants to make regular contributions to a single child may do so through a group plan. This plan includes several people and their children who invest their funds to benefit all in the group. 

Easy Withdrawal Process

When the time comes for your child to commence their post-secondary education, you can tap into your RESP with ease to pay for tuition, books, rent, meals, and more. However, suppose your child decides not to pursue post-secondary education. In that case, you can withdraw your contributions or transfer them to another child. You may even be able to withdraw investment earnings, although they may be subject to tax and other conditions, or transfer it to an Registered Retirement Savings Plan (RRSP). 

The Importance of Saving for Post-Secondary Education

According to the Public Agenda, 70% of students who drop out of university do so because of financial concerns. By starting the savings journey early, placing importance on budgeting, and considering grants, scholarships, and saving plans, students may feel more confident to enrol in a college, trade school, university, or another academic program. 

Saving for post-secondary education can also reduce the need to take out hefty loans that can be a significant burden later in life. Even though there are several student loan options available, many of them carry interest rates of at least 2.5% plus prime, with prime referring to the average bank prime rate at the time. 

When you consider the ever-rising cost of post-secondary education, high interest rates of student loans, and the significant stress associated with financial woes, having a savings plan can be a lifeline. Giving your child the gift of education in the form of an RESP may be one of the best things you ever do for them. 

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.