RESP contribution increases with family income

According to a report released by Statistics Canada, Canadian students enrolled full-time in undergraduate programs will pay an average of $ 6,693 in tuition fees for the 2021-2022 academic year (Photo: The Canadian Press)

Halifax – When Jacob Ritchie and his wife Krista had children, saving money for their post-secondary education seemed like a luxury they couldn’t afford.

The engineer and professor were still at the start of their careers, paying off their own student loans.

“We were at the point where every dollar counted,” he says. “We had to pay daycare and other bills.”

But when they bought a home and met with a financial planner, the couple opened Registered Education Savings Plans, or RESPs, for their three children.

“We developed a relationship with someone at the bank and we trusted them,” says Ritchie. “But that only happened when we had the means and the money.”

A new survey shows that while most Canadians are familiar with RESPs, less than half of them use this investment vehicle.

According to the results of the survey conducted by the Canada Life Assurance Company (Canada Life), only 17% of respondents indicated that they were aware of the benefits and contribution limits of the savings tool.

This is despite the fact that education planning is cited as a top priority for Canadians with children under the age of 18 – right after retirement.

With the cost of post-secondary education rising, Paul Orlander of Canada Life argues that an RESP is an effective way to save for a child’s education, while helping them avoid excessive student debt. .

“The government will match 20% of RESP contributions each year, up to a maximum of $ 500,” said Orlander, Executive Vice President, Individual Client, Canada Life.

Gains on contributions grow tax-free over the life of the RESP.

“It’s kind of free money, and it doesn’t happen too often in our lives.”

The survey found that the average total RESP contribution was approximately $ 22,800, with a median monthly contribution of $ 210.

No money to put aside

Yet some parents may choose not to contribute to an RESP because they simply cannot afford it, according to a recent Statistics Canada study.

The federal agency’s survey found that RESP participation rates tended to increase dramatically with family income. Differences in wealth remain the most important factor behind the gap in RESP participation by family income – even after accounting for differences in parental education and literacy, numeracy and skills. financial literacy.

“People are worried about paying for housing and child care, and putting food on the table,” said Canadian Center for Policy Alternatives national office director Erika Shaker.

“They might not have extra money to put aside for something that will take place in 10 or 15 years.”

The big problem is the skyrocketing costs of post-secondary education and the complexity of the student financial aid network in every province, which changes almost with every electoral cycle, she said.

According to a report released by Statistics Canada earlier in September, Canadian students enrolled full-time in undergraduate programs will pay an average of $ 6,693 in tuition fees for the 2021-2022 academic year, an increase of $ 1. 7% compared to the previous year.

Knowledge First Financial, which specializes in education savings, calculates that by 2030, the average cost of a four-year post-secondary degree will be about $ 111,698 with residency costs and about $ 55. $ 548 without residency costs.

“Telling people to save more and hang a (government contribution) as if the problem was a lack of motivation rather than a simple lack of funds will not solve the underlying problem, which is the cost,” emphasizes Mrs. Shaker.

Dalhousie University economics professor Lars Osberg says the problem is the privatization of the financial burden of university education.

He says some graduates are slow to buy a house, start a family or even contribute to a savings vehicle like an RESP for their child because of high student loan debt.

“We have moved from a social responsibility for post-secondary education to a private one,” Osberg observed. “It puts a lot of pressure on parents and students.”

In addition to parents scrambling to repay their own student loans, he notes that middle-class incomes have largely stagnated in recent decades, leaving little money for savings.

Still, Orlander of Canada Life said opening an RESP early is helpful, even if parents can’t afford to save a lot.

“Establishing the habit of saving towards the goal is half the battle,” he argued. “Setting up a routine contribution is a crucial first step, because it allows you to consider increasing it later.”

Mr. Orlander added, “The ability of smaller amounts to accumulate over time through compound interest has a huge impact in the end. Every little bit counts. ”

Some facts about registered education savings plans:

– An RESP is a savings plan for a child’s post-secondary education.

– Contribution gains increase tax-free over the life of the RESP.

– When funds are withdrawn for education, income is taxed on behalf of the student, often resulting in little or no tax.

– The government matches 20% of the first $ 2,500 contributed annually to an RESP, for a maximum of $ 500 per year.

– The money can be used for expenses related to post-secondary education, including tuition, books, accommodation, meals, a laptop and transportation to the educational institution.

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