Financing Your Kid’s Future With The Canada Child Benefit
Here’s Hoping The New Canada Child Benefit Will Be A Boost For RESP’s
Paying for your kid’s post-secondary education is going to be expensive. Like. Really, really expensive. I have a 6-year-old so I think about this a lot.
Tuition and books will run you about $7,000 today. But when you add some more on to account for the requisite buses and beers, that number jumps to at least $10,000 – and that’s if they live at home with you. Tack on a modest 3% inflation rate to that, to project 15 years out, and you’re looking at $16,000 a year, for probably four years. That’s a total of $64,000.
Breathe.
Just breathe.
The $64,000 question: Is the Canada Child Benefit part of the answer?
This is, quite literally, the $64,000 question. And it is better to ask it – and ideally answer it – as soon as possible to give you as much time as possible to save. Perhaps the new Canada Child Benefit will help.
The Canada Child Benefit, or CCB, is a new program aimed at helping families with the cost of raising children today and into the future. The cheques (or direct deposits) arrived in July and I’m optimistic that the money will prompt at least some families to open up a Registered Education Savings Plan for their kids.
A new Ipsos poll, commissioned by a leading RESP provider Knowledge First Financial, found parents plan to spend 37% of the benefit on day-to-day expenses, and 22% on savings for post-secondary education. Hooray.
RESP’s provide big benefits for Canadian families
I am a big believer in the RESP, for three reasons: First, education is getting more expensive every year and kids will likely need help to avoid hefty loans. Second, the federal government gives you a juicy grant – 20% of your contribution, or up to $500 per child per year.
Related: RESP and Your Child’s Future- The Basics
(Now that Bernie Madoff is in prison, where else can you get a guaranteed 20% return on anything?) And third, the RESP encourages you to start saving now, now, now so you get the biggest benefit from the magic of compound interest.
The maximum Canada Child Benefit will go to families with incomes of under $30,000 per year. For them, it is already very tough just to make ends meet, let alone carve out some carve for savings. But the launch of this program is a great reminder for all of us parents to open up an RESP and then get creative with our budget and think of ways to increase income or cut expenses to make the contribution and give our kids a leg up later in life.
You can check out the government’s calculator (here) to figure out how much CCB your family is entitled to. If you are in one of the higher income brackets, don’t be surprised if you find that you will get less under the new system. It takes income into account, so the benefit declines the more money you make – which is as it should be, in my opinion.
This new program is also simpler for tax filers– the money is tax-free, and you don’t have to keep track of receipts for arts and fitness activities. Plus, families are able to spend the money where they see fit, instead of having to register a kid in swim lessons to receive the tax credit.
Education seen as key to success in job market
Post-secondary education is becoming increasingly important. The Ipsos / Knowledge First Financial poll found that three in ten (29%) parents said that the most important reason post-secondary education is worth the investment is because it is a basic requirement in today’s job market. Others believe the most important reason is that it helps to develop practical/job skills (23%).
Remember, too, that the money saved in an RESP can be used at lots of different institutions – not just Colleges and Universities. Ballet school, culinary programs, and even the “Career School of Hair and Nails” are on the approved list.
In the event that your child doesn’t attend a post-secondary program, your money is not lost. The rules and penalties differ depending on how your RESP is set up, but even if you decide to close the RESP, the contributions you made are yours and you can get them back, minus the government grants. That would likely be a last resort anyway, as you may be able to replace the beneficiary, or even transfer the money to your RRSP.
Start the money conversation early and have it often
There is the money part of education savings, and there is also the communication part. What I mean is that for most families, increasing education savings will require trade-offs. Working more overtime means less family time. And tweaking the budget might mean less money for activities, vacations, dining out and entertainment. Getting your spouse and kids on board is a key part of the process, so set a date and time for a family meeting.
The other conversation to have is around expectations. It pays to set expectations with your kids as early as possible that they will be responsible for paying for part of their schooling – if that is how you’re going to do it. We talk to our six-year-old a lot about what jobs she would like to have as a teenager to help pay her share of college or university.
Education is worth it, but it is going to be expensive. The new Canada Child Benefit isn’t a magical solution – GooGone is the only magical solution I know of that lives up to its billing. But I hope that the CCB is a catalyst for all parents – regardless of income – to talk about what they can do to help set their kids up for success.
So here’s my question: What is one thing you could do to increase education savings in your family?
Post Contribution: Bruce Sellery a personal finance expert and the author of the Globe & Mail bestseller, “Moolala: Why smart people do dumb things with money (and what you can do about it)”. He appears regularly on Cityline and Breakfast Television and is a columnist for MoneySense Magazine, Today’s Parent and Chatelaine. He was the host of Million Dollar Neighbourhood on the Oprah Winfrey Network and spent almost a decade as an anchor for BNN in Toronto and New York City.
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