A penny saved is a penny learned

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This article was published 16/09/2023 (1058 days ago), so information in it may no longer be current.

Azenith Magno-Desiderio’s parents instilled in her early on the value of a good education, but paying for post-secondary education remained a going concern when she was in the Philippines.

Despite the financial challenges she faced, Magno-Desiderio was eventually able to leverage her post-secondary education into a career in the financial services industry in Winnipeg.

The experience drove home to Magno-Desiderio the importance of saving early for her children’s future, who were likely to face even greater post-secondary costs in the future.

“I really felt the urgency to save money for my kids’ future,” says Magno-Desiderio, an advisor with SmartWealth Financial Inc.

In turn, Magno-Desiderio started saving in a Registered Education Savings Plan (RESP) as soon as she could. Given RESP contributions attract a 20 per cent grant, she frequently urges clients with children to do the same.

“Most do want to save for their kids’ education,” even if it means saving a little less for their retirement, she adds.

It’s likely many other Manitoba parents feel the same, according to a new poll by TD.

“We know that inflation is high and affordability is top of mind for many Canadians,” says Emily Ross, vice-president of everyday advice journey at TD in Toronto, citing the reasoning behind the survey.

“And so, we suspected today’s students would find costs extremely challenging compared with previous generations.”

The hunch proved to be correct with 82 per cent of Manitoba and Saskatchewan respondents believing students now face more financial challenges than past generations.

“All around budgets are getting stretched more than before,” be it for students attending post-secondary today paying for tuition, books, rent and groceries, or parents saving for their children’s future education, she adds.

Many are looking for advice. Key to that guidance is to start contributing to a RESP and receiving the Canada Education Savings Grant (CESG).

“It’s amazing how many people I speak to that don’t know about the grant you can get when contributing to a RESP, and that you need to start early to maximize the value of those,” Ross adds.

Statistics Canada data shows about 55 per cent of eligible Canadians do take advantage of this powerful savings tool.

That’s not entirely surprising given many young families have a multitude of costs from mortgage payments to day-care to servicing their own student debts.

Yet whatever money they can find to contribute — even $25 a month — is worth the effort given it attracts the grant.

“Simply put, a dollar invested in a RESP goes a lot further than a dollar invested elsewhere,” says Christine Van Cauwenberghe, head of financial planning at IG Wealth Management in Winnipeg.

Each year, the 20 per cent grant is worth a maximum of $500 on $2,500 in contributions per child. All told, a child is eligible for as much as $7,200 in grants until age 18.

Low- and middle-income families are eligible for even more support — an additional $100 in CESG per year, while low-income families can also receive the Canada Learning Bond.

“The bond doesn’t even require that you contribute to the RESP to receive it,” Van Cauwenberghe says.

Providing a grant of $500 to a low-income child’s RESP in the first year of eligibility, the Canada Learning Bond is worth $100 annually thereafter to a maximum of $2,000 grants.

Although grants are a key reason to use RESPs, starting contributions to receive the associated grant money as early as possible are also critical to making the most out of the program because invested monies have longer to grow tax-sheltered.

Only once the money is used for post-secondary are the withdrawn grants and investment growth taxable, but original contribution sums are not taxable when withdrawn.

Also, of note here is that the taxable portions are attributed to the students, “who may effectively never be subject to much if any tax” because their income is either taxed at the lowest rate or is often below the threshold for taxation, Van Cauwenberghe says.

While managing RESP withdrawals can be complex, requiring professional advice, it’s far better than the alternative, which often involves taking on student loans.

Given average tuition for a four-year undergraduate degree in Manitoba is about $5,700 annually, debt levels can be significant. The most recent data from Statistics Canada’s from 2019 show that graduating students carried an average of $15,300 in student loans in 2015.

That’s likely much higher today, potentially leading some to question rightly the benefits of post-secondary education given the costs. That is already happening in the U.S. where tuition is much more costly, resulting in high debt burdens, a recent New York Times investigation found. So much so that the Times pointed to recent surveys showing how Americans soured on higher learning, valuing it much less than a decade ago.

That’s not happening here yet, says Heather McIntosh, associate director of education and skills research at the Conference Board of Canada.

“Post-secondary education is still seen as having value,” she adds, pointing to the Conference Board’s own research.

“You can pooh-pooh a post-secondary degree,” but even general arts and science degrees provide graduates with important skills — like critical thinking and communication — that employers increasingly value today, she adds.

And post-secondary education still pays off long-term, a Bank of Canada study found. It revealed that in 2018, workers in their 40s earned $13 more an hour with a university degree and $4 more with other post-secondary training than those without it.

That said, the study noted the gap is shrinking because of increasing costs.

All the more reason for parents to help their children sooner than later, Magno-Desiderio says.

“Hopefully, all parents will use a RESP so their kids will not be stressed out about paying for their education and can focus on their studies instead.”