You want your children to succeed in life – and it is undeniable that a post-secondary education will help them get there; according to Statistics Canada*, the average university graduate earns almost twice as much as someone who has a high school education.  But, the cost of a post-secondary education continues to rise dramatically.  On average, tuition fees doubled between 1990-91 and 2003-04, with the most recent tuition increase of 7.4 percent the biggest in four years.**  Small wonder experts are predicting that the total cost of a four-year degree – including tuition, books and living expenses – could easily exceed six figures by the time your toddler is ready for college or university.

All this means that you need every advantage you can get when saving to help your children pay for a post-secondary education -- without burdening them with huge student loans or the extra stress of a part-time job during the school year.  And you need to get started as soon as possible. 

One of the most effective ways to create an education fund that grows to offset the future cost of education is through a Registered Education Savings Plan (RESP).  Here’s why an RESP is such a powerful cash-accumulation vehicle:

Tax-deferred growth. You can contribute up to $4,000 per child, per year, to a lifetime total of $42,000 per beneficiary.  Earnings accumulate tax-deferred as long as they are in the plan and, when the child withdraws the money, the earnings are taxed at the child’s lower tax rate, usually resulting in significant tax savings as compared with having the money invested in your hands.

Government grants. The Canada Education Savings Grant (CESG)*** tops up RESP contributions – adding 20 percent to the first $2,000 contributed each year, which could add as much as $7,200 in extra investment capital over time.  Unused grant room can be carried forward until the year a child turns 17, so you can usually make up for any missed contributions along the way.

Flexibility. If the beneficiary chooses not to pursue a post-secondary education, you have the options of selecting a different beneficiary or transferring the earnings on a tax-deferred basis into a Registered Retirement Savings Plan (RRSP), subject to certain restrictions.

Anyone can contribute to an RESP – parents, grandparents, aunts, uncles and even good friends – but the total contributions can’t exceed the RESP limits for each beneficiary.

Mutual funds are often a good choice as an investment to have in an RESP.  But be sure your education investments are in accord with your overall financial goals and time horizon and follow an effective ‘asset allocation’ strategy that meets your diversification and risk/return requirements.

Be sure to select investments that allow you to switch as your financial goals change.  And be sure to begin investing right away – the longer you save, the more you’ll likely have for your children’s education.  Talk to a professional financial planner about the best RESP investments for you.

*Statistics Canada, Catalogue No 13-217-XPB, January 1997

**Statistics Canada, Catalogue No 11-001-XIE, August 2003

*** Canada Education Savings Grant is sponsored by Human Resources and Skills Development Canada. The changes to the Canada Education Savings Grant, and the new Canada Learning Bond (as announced in the March 23, 2004 Federal Budget) are not contained in this article as these changes have yet to be passed into law at the time of writing this article.

This column, written and published by Investors Group Financial Services Inc., is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide professional advice including, without limitation, investment, financial, legal, accounting or tax advice. For more information on this topic or on any other investment or financial matters, please contact your Investors Group Consultant.