Having children brings many additional expenses of expected and unexpected sources. From the extra spending on activities, food, school supplies, clothes and regular day-to-day spending, to unexpected needs like braces or special care, it is undeniable that children generate expenses. You happily spend on your children because you want to invest in them and care for all their needs.
Beyond the short-term needs, have you considered the long-term needs? You invest in your child’s current happiness, but what about a successful future? This is where planning and being informed can really pay off!
Registered Education Savings Plan (RESP)
The Registered education savings plan, otherwise known as RESP, is an account in which you contribute to your child’s education.
Anything you can contribute to your child’s education, will help them avoid having to take out student loans and the added stress that comes along with it.
The RESP a great way to save for your child’s post-secondary education. Like the TFSA (tax-free savings account) and the RRSP (Registered retirement savings plan), it is a tax-sheltered account. The government of Canada will also be contributing to your child’s education fund. To incentivise participation, they offer the Canada Education Savings Grant (CESG). This grant matches up to 20% of your contribution, to a maximum of 500$ per year.
Even on a low budget, if you can manage to put away 500$ in a year (that is less than 42$ per month), the government of Canada will add 100$ into your child’s account. You just made 100$ of free money!
With a conservative 4% rate of return, and a small investment amount of 500$ per year, your child would have an estimated 14 000$ by the time s/he is 18 years of age, with an additional 1800$ of free money from the government of Canada.
Like the TFSA and the RRSP, you can choose where your money is invested. You can leave it in a savings account, you can buy mutual funds, stocks, bonds, etc.
The RESP doesn’t have to be used by your child right away. It can be used into the child’s early 30s and can be applied to a variety of programs including trade schools to universities. If your child doesn’t pursue post-secondary education, you can transfer the funds into a sibling’s RESP or even your own RRSP for your retirement, if you have contribution room.
What a great way to make free money!