Parents looking to put money aside for their child’s post secondary education should do so sooner rather than later, according to a financial planner.
Andy Lau, manager at Vance Financial Group Inc., said that many parents opt not to invest money into a Registered Education Savings Plan (RESP) simply because they believe it is “too complicated.”
“Unfortunately a lot of young parents think (RESP) are way too sophisticated and don’t want to spend time on it,” said Lau.
“They don’t realize that even $25 or $30 is already sufficient for them to start a plan.”
Parents thinking about saving when their child is still relatively young would benefit most from putting their money into an education fund, according to Lau.
Applying for an RESP early could qualify them for a grant of $500 from the Government of Canada as well as an additional $100 per year up to age 15.
The grant, called the Canada Learning Bond (CLB), is just one example of the benefits of saving money ahead of time.
While some parents choose to start an RESP portfolio when their child is going into high school, the amount of time they have to save up is significantly less.
“If you start RESP by the time a child has started high school, they only have about five years to accumulate,” said Lau. “The money compounding on a tax deferral basis will allow you to have much much bigger chunk of money.”
Not every child with an RESP will pursue further education after high school, but that does not mean the money saved up will go to waste.
The money stays in the account for up to 35 years, and the child will be able to use it should they decide to pursue more schooling later on in life.
Parents can also choose to transfer the money from their RESP account to their Register Retirement Savings Plan (RRSP) as long as they have money saved up for at least ten years.
“I do encourage the parents, do spend a couple of hours to study about the advantages of RESP,” said Lau. “It’s really worth the time and money for the parents to consider establishing one for their own child.”
