Education

Start Saving Now For Your Children’s Education

by Pam on November 7, 2009

Do you hope that your children will one day get a post secondary education? Are you planning on helping them out with funding at least part of it? If so, I would highly recommend that you begin saving now. For Canadians, a Registered Education Savings Plan (RESP) is a good option.

When you contribute to an RESP, the Canadian government will provide grants and bonds that will aid you in helping to save for your children’s education. Although your contributions to an RESP are not tax deductible, the earnings are tax sheltered until withdrawn and are taxable to your children at a much lower tax bracket.

The earlier you start saving, the better. To illustrate this, let’s imagine that you want to fund 4 years of post secondary education for your child. Let’s assume that in 2009 it costs $7000 per year for tuition, and that your child will begin university at age 18. Taking into account inflation, if you begin to save within an RESP when your child is first born, you will only need to tuck away $80 per month for 18 years. That works out to $17280 out of your pocket.

With the same scenario as above, if you begin to save when your child is 5, you will need to tuck away $122 each month for 13 years, which works out to $19032 out of your pocket. If you start when your child is 10, it will cost $214 per month for 8 years, costing you $20544. And, finally, if you wait until your child is 15 to begin saving, you would need to come up with $676 monthly for 3 years, which works out to $24336. So, as you can see, the later you start saving, the more burdensome it will be and the more money will need to come out of your own pocket.

In a previous post I wrote about the importance of indexing your investment contributions to inflation, meaning that it’s a good idea to increase your contributions by at least 3% each year. The numbers below show the savings you could enjoy if you were to do so.

START AGE FIXED WITH 3% INCREASE/YR

0 $80 $64

5 $122 $103

10 $214 $193

15 $676 $656

The time to start saving for your children’s education is now. The sooner you begin, the easier and more manageable it will be to help your children to get a good start at a promising future. For more information on RESPs, check out this link.

What is the Lifelong Learning Plan?

by Pam on October 24, 2009

Are you considering going back to school full time but you’re not sure how you will pay for it? If you have savings in your RRSP, you can take advantage of the Lifelong Learning Plan.

The Lifelong Learning Plan (LLP) is a government program that allows an individual to withdraw money from their Registered Retirement Savings Plan (RRSP) to pay for post secondary education and no tax will be withheld. The funds withdrawn can be used for the individual plan owner or for their spouse or common-law partner.

In order to qualify, you must be enrolled as a full-time student in an educational program at a designated institution.

Here as some fast facts about LLP:

You can withdraw up to $20,000.
The maximum withdrawal per year is $10,000.
There is no lifetime maximum. Once the previous plan has been paid back, you can withdraw more funds from your RRSP under the LLP.
You cannot withdraw money that has been contributed within the last 89 days.
You can use the funds to cover living expenses in addition to school expenses while attending school.
You need to begin repaying the funds back into your RRSP in the fifth year from when the plan started or when you are no longer entitled to the education amount on your tax return for 2 consecutive years, whichever comes first.
When repayment begins, you need to pay at least 10% of the amount withdrawn back into your RRSP. You will not be getting another tax refund on the repayment as you already received the tax deduction the first time you made your RRSP contribution.
You have up to 10 years to repay the withdrawals.

For more information, check out this link.

Teach Your Kids About Money

by Pam on May 2, 2009

Whether you like it or not, if you are a parent, you are a role model for your kids. Your kids observe the way you handle your money and will often handle theirs the same way. However, even if you are financially savvy, your kids won’t necessarily be as successful without some guidance starting at a young age.

Here are some things every kid should learn about money from their parents:

1. Money doesn’t grow on trees. Parents have to work hard for every dollar they earn.

2. Parents have priorities for their money. It needs to be used first for food, shelter, clothing, and savings, and whatever is left can be used for extras. Kids have to learn that they cannot always get what they want.

3. Teach your kids the value of giving. Encourage them to give part of their allowance to a charity or sponsor a child as a family.

4. Teach your kids the value of hard work. Have your children do some small chores around the house in order to earn their allowance, rather than just handing it to them.

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