Recently updated on October 25th, 2022 at 11:03 am
According to the latest data from Statistics Canada, an undergraduate has an average debt burden of $28,000. By the time your grandchild reaches post-secondary educational institutions, the cost of higher education may get out of their reach.
Grandparents should start early investments in a Child’s Plan to help them pursue their higher education and save them from the financial debt burden. In Canada, several government-sponsored grants (e.g., RESP) or comprehensive private plans (e.g., Child Plan™) are available to back up a child’s post-secondary education. Read more to get to know what Child Plan has to offer.
Although every scheme has pros and cons, the final decision rests on your needs and budget. Therefore, we have listed some tips on helping your grandchild save for their education to simplify things.
Tips on helping your grandchild save for their education
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The best way to support your grandchild’s future education needs is to save money in accounts that will grow with time. Put sincere efforts to sensitize your grandchildren about the power of savings and compounding.
In the meantime, you can follow four strategies and involve your grandchild in this as and when they become mature.
1. Open a high-interest savings account
Although small savings can translate into a considerable sum with time, money in your regular savings account doesn’t grow fast compared to inflation. Therefore, whenever you choose to set a monthly amount as a saving, ensure you put that money in a high-interest savings account.
It is the most convenient saving that gives you complete control of your money. You can quickly deposit or withdraw your money at your convenience.
Further, after 18 years of age, your grandchildren can continue to deposit money in this account.
A Tax-free savings account (TFSA) is a powerful tool in the hands of Canadians to save taxes on contributions, dividends, interest, and any other capital gains. Further, you can withdraw the accumulated amount without paying any taxes.
Through TFSAs, grandparents can grow their accumulated money tax-free. Money in such an account is transferred to the beneficiary on achieving adulthood.
The sole purpose of such saving accounts is to fund the future education of your grandchild. To make sure the money will be utilized for the intended purposes, carefully decide the account’s ownership or terms for the beneficiary.
3. Life insurance
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Grandparents can buy life insurance that their grandchild can use in the future to fund their higher education. Apart from covering their lives, life insurance can be used. Your grandchild can opt for the following:
- Use the annual cash dividend to fund the post-secondary education expenses.
- Borrow money on the cash value of the insurance policy
- Break the policy and withdraw the accumulated cash.
Considering life insurance benefits, it is also a viable option for helping your grandchild save for their education.
4. Open RESP
A Registered Education Savings Plan (RESP) is a government-sponsored saving plan that helps parents or grandparents save for their Child’s post-secondary education. The main advantages of this program are:
Canada Education Savings Grants (CESGs) – The government matches 20% of the contribution made to the RESP account up to a maximum grant of $500 per year.
Tax-free money growth – The money in the RESP account grows without any tax. Tax will be charged to your Child’s hand after they start to withdraw the money from the account to fund their education.
Several RESP accounts can be opened per child. However, the maximum contribution from all RESP accounts is capped at $50,000 per Child.
Child Plan for grandchildren
Often tagged as the best alternative to RESP, this “Participating” Whole Life plan offers endless benefits for both Parent and Child. A Child Plan does not only funds your Child’s post-secondary education but covers any future financial needs. Unlike RESP, Child Plan is highly customizable and flexible. Here are some noted benefits of this plan.
- Tax-free growth from day one can be utilized to fund a child’s higher education anywhere, down payment on a first home, or their first startup.
- Annual tax-free dividends for life.
- Can be opened just 14 days after the birth of your child.
- Quickly transfer the savings to your Child, tax-free, anytime after they turn 18.
- It is a whole life insurance plan that covers your Child’s life.
The plan is permanently funded after 20 years, so you need not deposit any amount after this period.
Tips for saving for Your grandchild
Here are a few tips to help you save for your grandchild’s post-secondary education.
1. Automated deposits
In this hustle-bustle of life, you may become too busy or spend too much to spare a monthly amount for your Child’s future education. Hence, setting up an automated deposit mandate into a Child Plan or RESP is vital to overcome this challenge. In this way, a specified amount will be automatically credited to your Child’s RESP account.
2. Slow and steady wins the race
While investing in stock markets or mutual funds looks lucrative, you should first familiarize yourself with the repercussions of such investments. Moreover, some impulsive grandparents find the idea of small and steady savings a thing of the past. But the reality is that small savings for an extended period can translate into a significant amount. Moreover, you can adjust your investments according to your grandchild’s future goals.
Apart from financial planning, grandparents can inculcate good financial habits into tier grandchildren.
While the needs are endless and choices are vast, starting early is the key to any investment. Considering the rate at which post-secondary education costs have risen, saving for your grandchild’s future education becomes more vital.
The market is full of companies promising the best plans for your grandchildren but fails to deliver on the ground. If you choose the wrong plan that doesn’t suit your goals, you may lose your hard-earned money. Here comes the importance of tailor-made child savings plans such as Child Plan for Grandchildren. The plan is designed to cater to different modern-day requirements of any child.