Tag Archives: RESP

How much should you contribute to your child’s education?

According to a May 2017 Globe and Mail Report average university/college tuition in Saskatchewan is over $7,000/year but you need to also factor in living expenses, books etc. And if your child is just starting kindergarten, it is not easy to predict how costs will escalate over the next decade or more.

Many parents wisely take advantage of the tax breaks and grants available by saving in Registered Educational Savings Plans. But they also expect their kids to contribute to the cost of their post-secondary education by applying for scholarships, working part-time and taking out student loans.

Therefore it is interesting to note the results of a recent poll conducted on behalf of RBC® that found students who receive less than one-quarter of their funding from parents feel more confident in their financial decision-making and are more likely to make and stick to a budget compared to their peers who receive more family financial support .

Students whose parents contribute less than 25% Students whose parents contribute 25% or more
I feel confident in my financial decision making 50% 41%
I make a budget and stick to it 42% 33%

 

Expectations after school
Students receiving more financial support not only have more expectations of parental assistance during school but are twice as likely to expect some help from their parents post-graduation (21% compared to 11%).

“While contributing financially to your child’s education is a wonderful gift, being clear on expectations from both parties is really important. Make sure you discuss the ‘terms’ including when financial support will end,” says Laura Plant, RBC Director, Student Banking

Tips for Parents

  1. Have “the talk”: Start talking about budgeting and money management with your child early on. The earlier you get the conversation started, the more prepared everyone will feel when it comes time to start paying for tuition and other expenses. The transition to post-secondary education is significant – reducing money stresses is one way of easing the change.
  2. Start saving early: If you plan on contributing to your child’s education, save early and save often. One way of getting started is by opening up a Registered Education Savings Plan.
  3. Set the expectations: If you plan on contributing to your children’s post-secondary education, set the expectations on what you will contribute and what you expect them to contribute. Getting everyone on the same page is an important first step.

Tips for Students

  1. Don’t leave free money on the table: No matter how you are funding your education, there are lots of resources out there to help you access free money, including scholarships. Resources such as ScholarshipsCanada.com and StudentAwards.com will help you on your journey to free money.
  2. Save, Save, Save: Develop a habit to save on a regular basis. No matter how small the amount, saving can help you achieve your short and long term financial goals – whether it’s paying for tuition, rent or saving up for a reading week vacation. Let your money work harder for you by setting up automatic transfers from your daily chequing account into a separate high-interest savings account or guaranteed investment certificate to be used towards your goals.
  3. Talk to an expert: Let’s face it, as a post-secondary student (or soon to be student), you have a lot on your plate. Speak with a financial advisor on how to start saving and what options make the most sense for you and your family. This will help set you up for success.

We contributed to our childrens’ university education using RESP savings and current earnings. While I didn’t keep track of how much we gave them or what percent of their educational expenses we covered, they were able to graduate from their first degrees debt free.

Both kids also have Masters degrees and took post-graduate professional college programs which they self-financed. My son had scholarship money and my daughter worked for a major public sector union that paid for her tuition as she successfully passed each course.

I am quite confident that the financial lessons they learned living on a student budget and helping to support themselves were just as important to their future success as the programs they formally studied at university.

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

Sept 11: Best from the blogosphere

As the leaves change colours and we gear up for the busy fall and winter season, it’s time to check in on what some of our favourite personal finance writers have been discussing this summer.

With the announcement that CIBC has gobbled up PC Financial which will be rebranded as CIBC Simplii Financial on November 1st, Stephen Weyman says on Howtosavemoney.ca that it will be banking as usual in the short term but you can expect CIBC to sneak in a few fees here and there to make sure they’re profitable and try to cut costs where they can.

On Boomer & Echo, Marie Engen offers 25 money saving tips. A couple of my favourites are:

  • Turn off the “heat dry” on your dishwasher. Open the door when the cycle is done and let the dishes air dry.
  • Learn some sewing basics so you can make minor repairs and alterations to your clothing – hem your pants and skirts, sew on a button, sew up a torn seam, put in a new zipper.
  • Buy some time. Set aside the purchase you are considering for a few hours (or a day or two) before you decide whether to buy it. Often you may decide you can easily live without it.

Bridget Casey (Money After Graduation) has recently welcomed a new daughter and she is already thinking about saving for her college education. She writes about the importance of setting up your child’s Registered Educational Savings Plan as a trust so it will be covered by the Canada Deposit Insurance Corporation in the event of financial institution failure up to $100,000 per account.

Retire Happy’s Jim Yih writes a thoughtful piece on Minimizing Your Old Age Security Clawback. The maximum monthly OAS benefit in 2017 is $578.53 ($6,942.36 annually). If you earn between $74,788 and $121,070/year the OAS benefit will be clawed back. He explains that with pension splitting, spouses can give up to 50% of their pension income to their spouse for tax splitting purposes. This is a very effective way to reduce income if you are close to the OAS clawback threshold.

When Sean Cooper, author of Burn Your Mortgage paid off his mortgage, he promised himself he’d stop putting off travel. His first major trip was to San Francisco this summer. Nevertheless, he still travelled frugally booking his $700 roundtrip flight through PC Travel. He also got from the airport to downtown on Bay area rapid transit for less than $10. In San Diego, he opted for a four-bed mixed dorm room at USA Hostels for less than $60 a night as opposed to $200/night in a hotel.


Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

6 things my Mom taught me about money

By Sheryl Smolkin

MY MOM AND HER GREAT GRANDDAUGHTER

My Mom will be 90 this year and we recently moved her to a private retirement home that specializes in Alzheimer’s and dementia care. In her prime, she was a feisty, fashionable businesswoman. In fact she sold registered educational savings plans well past when most people retire and her employer finally made a retirement dinner in her honour when she was over 80.

As we sorted through her condo to get it ready for sale, I realized that my mother taught me many essential lessons about money, both before and after I left home. Here are six important things I learned from her over the years — in many cases, by osmosis.

  1. Avoid debt at all cost: When we were growing up, the golden rule was, if you can’t afford it, you can’t buy it. Credit cards were not as pervasive as they are now and we were encouraged to save a portion of our allowance until we had enough to purchase the desired item. Other than a mortgage, my parents paid off their bills every month.
  2. Never pay retail: As an inveterate shopper on a limited budget my mother knew how to stretch a dollar. Her view was and still is that a sale starts at 50% off. She also seized every opportunity to buy clothes for the family wholesale direct from factories in Montreal she was able to visit as a result of family contacts. Internet shopping came a little too late for her, but if she was a few years younger, I bet that she would have loved searching for bargains online.
  3. Get an education: My grandparents emigrated from Europe. Neither of my parents graduated from high school. My brother, sister and I were the first generation on both sides of the family to attend university. For as long as I can remember my Mom viewed education as the key to a golden door that would unlock future opportunities.
  4. Invest in your children: While my Mom taught us the value of a dollar and we had summer jobs to defray the costs of going away to university, she scrimped and saved to make sure all three of us could graduate from a first degree, debt free. In her 40s she became a successful real estate salesperson and then a broker, in part, to help generate money for our education. We have done the same for our children.
  5. Buy and pay off a home: Mom firmly believed that a paid off home is the best retirement savings plan. It turns out that she was right. When she moved to Thornhill in 1980 she bought a semi-detached house for under $100,000 with a down payment of $30,000 realized from the sale of her home in Cornwall. Since then she moved to a condo which is expected to sell for over six times the value of her first Toronto area property.
  6. Save for a rainy day: Once she started making her own money selling real estate and then RESPs, Mom made maximum contributions to her RRSP every year. While initially her savings meant she could afford extras like travel in retirement, in the last few years we have used her money to hire caregivers so she could stay in her apartment as long as possible. And I am grateful that balance of her savings and the proceeds of sale of her apartment will now be available to pay for excellent care as long as she needs it.

But as we gather to celebrate our Mom on Mother’s Day, I realize the most important lesson she taught me is the power of love and family through good times and bad. My daughter’s family lives in Ottawa so she only sees her great granddaughter every few months. She may not remember her name or how she is related but she knows she is someone important and her hugs and kisses are more valuable than anything money can buy.

 

Feb 20: Best from the blogosphere

By Sheryl Smolkin

Get out the popcorn! It’s time for our selection of monthly personal finance videos.

First of all, if you don’t have a company pension plan for your employees, you need to know about the SPP business plan. Find out why the Sutherland Chiropractic Clinic set up SPP for their employees.

Globe and Mail personal finance columnist shares some great ideas for protecting yourself from online scammers.

In Save Your #@%* Money with these RRSP, TFSA, and RESP recipes Melissa Leong brings you an amusing look at the ingredients it takes to successfully save in these registered vehicles.

Preet Bannerjee explains how disability insurance works and why it is so important in this Money School blog.

And finally, if you have made financial mistakes along the way, it doesn’t mean you have irreparably ruined your financial future. Blogger Bridget Casey (Money After Graduation) makes a case for forgiving yourself for financial regrets.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

How will your kids pay for higher education?

By Sheryl Smolkin

Going to school after high school can be costly.

A student attending trade school, college, CEGEP or university full-time today can expect to pay between $2,500 and $6,500 per year—or more—in tuition. Books, supplies, student fees, transportation, housing and other expenses will only add to that total.

In fact, full-time students in Canada paid an average of $16,600 for post-secondary schooling in 2014–2015. That is more than $66,000 for a four-year program.

If you are saving for your children’s post-secondary education, give yourself a pat on the back. Canadian parents are ahead of their counterparts in other Western nations in saving for their children’s post-secondary education.

Close to three-quarters (72%) of Canadian parents are saving for their children’s post-secondary education, putting them ahead of parents in the U.S. (65%), Australia (53%) and the U.K. (46%), according to The value of education: foundations for the future report, which includes responses from parents in 15 countries and territories.

However, only 30% of Canadian parents are funding their children’s university or college education through a savings plan specifically for education. Almost one-quarter (22%) are taking that funding from general savings, investments or insurance policies and 66% are using their day-to-day income to get their kids through school.

RESP
That’s a shame because by saving in a registered educational savings plan you are eligible for the Canada Education Savings Grant and the growth in the fund can be tax-sheltered until the student eventually withdraws money for school expenses when he/she is likely to be earning less than you are now.

Employment and Social Development Canada pays a basic CESG of 20% of annual contributions you make to all eligible RESPs for a qualifying child to a maximum CESG of $500 in respect of each beneficiary ($1,000 in CESG if there is unused grant room from a previous year), and a lifetime limit of $7,200.

ESDC will also pay an additional CESG amount for each qualifying beneficiary. The additional amount is based on net family income and can change over time as net family income changes.

For 2015, the additional CESG rate on the first $500 contributed to an RESP for a beneficiary who is a child under 18 years of age is:

  • 40% (extra 20% on the first $500), if the child’s family has qualifying net income for the year of $44,701 or less; or
  • 30% (extra 10% on the first $500), if the child’s family has qualifying net income for the year that is more than $44,701 but is less than $89,401.

Unused CESG contribution room is carried forward and used when RESP contributions are made in future years provided that the specific contribution requirements for beneficiaries who attain 16 or 17 years of age are met.

Impact on your retirement
Given the increasing cost of post-secondary education it is not surprising that many Canadian parents are also concerned about how their children’s educational costs will affect their own finances, with 43% worrying about the cost and 31% concerned about how paying that expense will affect their other financial commitments. If their financial situation becomes difficult, many parents’ long-term savings and retirement plans may be in jeopardy.

Exactly half of Canadian parents believe funding their children’s schooling is more important than contributing to long-term savings and investments and 43% state that they prioritize their children’s post-secondary educational expenses over saving for retirement. More than half (54%) said they would be willing to go into debt in order to afford university or college expenses.

In addition, survey results reveal that Canadian parents are thinking about these expenses early in their children’s lives as 28% of parents start planning ways to fund these expenses when the child is born; 9% before the child is born; and 24% look at these issues before their child begins primary school.

Even so, half of Canadian parents expect their child to contribute financially toward those educational expenses and 39% say their university-aged children are helping to fund their own education, which is one of the largest proportions of all of the markets surveyed, the study notes.

To estimate your child’s future education costs and see how your planned RESP including contributions and grants will cover those costs, plug some numbers into the GetSmarterAboutMoney.ca RESP Savings Calculator.

Aug 8: Best from the Blogosphere

By Sheryl Smolkin

And just like that, it’s August! The days are getting shorter and families are starting to think about getting the kids back to school and getting serious about the upcoming round of fall activities.

Those of you sending your kids off to college or university will be interested in The Business of University Fees by Big Cajun Man aka Alan Whitton on the Canadian Personal Finance blog. Did you know if your child is still in school he/she is probably still covered under your group medical plan at work and most universities will allow you to opt out of the university’s plan?

If you have received your first child benefit cheques and haven’t already spent them on back-to-school supplies, here are 3 Great Ways to Use Your Canada Child Benefit Payment  by Craig Sebastiano on RateHub. RESP contributions, TFSA deposits or charitable donations, anyone?

And talking about TFSAs, take a look at Robb Engen’s TFSA Dilemma and Solution on Boomer & Echo. Like many of us Robb has a ton of TFSA contribution room ($50,500) He plans to turn his $825 monthly car payment – which ends in October – into future TFSA contributions, starting in January 2017. That’s $10,000 per year to stash in his TFSA, which at that rate would catch-up all of his unused room by 2027.

Have you reviewed your life insurance lately? Are you and your partner adequately covered so if one of you dies, the other can continue to pay the family bills? Bridget Eastgaard from Money after Graduation says Cash-Value Life Insurance Is For Suckers, Buy Term Instead.

And finally, Should you work part-time in retirement? by Jonathan Chevreau on moneysense.ca includes an analysis commissioned by Larry Berman, host of BNN’s Berman Call and Chief Investment Officer of ETF Capital Management. It illustrates the powerful impact of earning just $1,000 in part-time income each month between the age of 65 and 75; or in the case of couples $2,000 a month between them.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

Jun 20: Best from the Blogosphere

By Sheryl Smolkin

After several weeks of “theme” issues it’s time to check in with some of our favourite bloggers to find out what’s on their mind.

On Boomer and Echo, Marie Engen asks the perennial question RRIF Or Annuity? Which One Is Right For You?  She suggests combining both so an annuity covers your basic retirement expenses together with with your CPP, OAS, and any other pension income you may be receiving to give you a guaranteed income stream for life. This allows your RRIF to provide you with investment growth opportunities and easier access to your money for your more enjoyable lifestyle expenses.

Tax Freedom Day 2016 happened June 7th this year. Retire Happy’s Jim Yih says it’s another reason to celebrate summer. He explains where all of your taxes go because once you realize the severity of tax on your lifestyle, it is your job to investigate legitimate ways to reduce your tax bill. “I’ve often said that good tax planning is the foundation to any financial, investment or estate decision,” Yih concludes.

Bridget Eastgaard lives in Calgary where due to the drop in oil prices the rental market is very soft. On her blog Money After Graduation she shares One Simple Shortcut To Put More Money In Your Budget. Her research revealed a similar unit renting for $250 less in her building plus a half-dozen comparable apartments renting nearby for less. She succeeded in lowering her rent by 20%, saving hundreds of dollar a month that will be redirected to accumulating a down payment on a house.

Sean Cooper thinks Millennials Should Save Their Down Payment and Not Rely on the Bank of Mom and Dad. He says by showing your millennial child tough love, you’re teaching your kids a valuable lesson: not everything in life will be handed to them on a silver platter. Just like you did, he says they should to work for it.You won’t be there to help them forever.

And the Big Cajun Man Alan Whitten reminds readers to keep an eye on their bank account to make sure automatic withdrawals are being processed properly on an ongoing basis. When he checked on his son’s RESP recently, he found that TD Bank mysteriously stopped depositing in November of 2015. There has been a problem ticket opened on this issue, and someone will be getting back to him.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

 

Aug 17: Best from the blogosphere

By Sheryl Smolkin

You’ve been diligently socking away money in a Registered Educational Savings Plan (RESP) since your child was a toddler and in a few short weeks she starts university. Getting at the money can be a little more complicated than simply taking out money from your savings account. To help you through the process, this week we feature articles and blogs exploring all things relating to RESP withdrawals.

Mike Holman on Money Smarts discusses RESP withdrawal Rules and Strategies for 2015. He says there is one withdrawal rule to get out of the way – you are only allowed to take out $5,000 of accumulated income in the first 13 weeks. After 13 weeks, you can withdraw as much accumulated income (including educational assistance payments) as you wish.  However, there are no limits to withdrawals from the contribution portion as long as your child is attending school.

Bankrate.com blogger Jasmine Miller also writes about How to cash out your RESP. Because the government stipulates that financial institutions must follow “due diligence” to ensure RESP funds are being used for a child’s education your bank may want to see a copy of your child’s acceptance letter before releasing funds or they may take you at your word. Therefore she says it’s a good idea to keep all documentation and receipts.

The Investing for Me blog Withdrawals from RESPs notes that RESP withdrawals can generally be made to cover tuition, room and board, school supplies, computers and transportation as these are all eligible educational expenses under the Human Resources and Skills Development Canada (HRSDC) criteria. However, guidelines for withdrawals from a Group RESP account are governed by the plan’s contract or prospectus and group plans may have more restrictions than family or individual plans.

But what if your child doesn’t continue her education? Get Smarter About Money explains that if your child doesn’t continue her education after high school, there may be financial costs and tax consequences. But you have these four available options:

  1. Keep the RESP open – your child may decide to continue her studies later,
  2. Transfer the money to another beneficiary,
  3. Transfer the money to your RRSP,
  4. Close the RESP.

In Need to use an RESP this fall? Back to school starts now, Rob Carrick covers some of the same territory as the blogs noted above. However, he says one more consideration in filling out the RESP withdrawal form is where you want the money to go. You can have it sent to your chequing account, or your child’s account. He has the money from his son’s RESP paid into his and his wife’s joint account, and then he pays tuition and residence bills via Interac online.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.

May 25: Best from the blogosphere

By Sheryl Smolkin

Due to the holiday Monday (yeah!) and other days away from my desk for random reasons, this issue of Best from the Blogosphere is being written super early. So, on no particular theme we present some great content from the last several weeks.

The Apple watch has received a bad tap from many reviewers, but Retired Syd reports on Retirement: A Full-Time Job that the device works for her. She likes being able to do all sorts of things without digging in her purse for her iPhone like paying for coffee; listening to music; getting directions from Siri; dictating error-free texts; and just lifting her arm to display her boarding pass.

In a guest post on the Financial Independence Hub, Michael Drak writes about one thing he wishes his father had taught him. While he learned about the need for working hard, saving and eliminating debt as quickly as possible, his Dad didn’t teach him about the important concept of Findependence (financial independence) and how it could positively impact his life once it was achieved.

Freedom Thirty-Five is authored by a nameless late-twenties male living in Metro Vancouver. He recently wrote about succumbing to lifestyle inflation. It seems he’s ahead of schedule by one year to reach financial freedom by his 35th birthday. So he has decided to succumb to lifestyle inflation and increase his food expenses from $100 to $150/month; eating out from $25 to $50/month and phone and entertainment from $75 to $100/month. Could you get by on these modest amounts?

Boomer & Echo blogger Marie Engen says unless there is room for occasionally splurging in your budget, becoming too frugal can ultimately undermine your budgeting efforts. Don’t banish nice things from your life. Occasional guilt-free splurges can help you stay on budget if they don’t detract from your other goals. When you don’t feel deprived you will likely find it a lot easier to stick to the plan.

And finally, on Brighter Life, I wrote a piece about Five smart ways to use your tax refund. You can start an emergency fund; top up your RRSP; pay down credit card debt; pay down your mortgage; or, open a Registered Educational Savings Plan for your child.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.