The Plan by Investors Group^TM

Kids need to learn to earn

You want your children to succeed in life - and it is undeniable that a post-secondary education will help them get there; according to Statistics Canada¹, the average university graduate earns almost twice as much as someone who has a high school education. But, the cost of a post-secondary education continues to rise dramatically. On average, undergraduate tuition fees have almost tripled since 1990-91 to a national average of $4,524. Since 2000, the rate of increase of tuition fees has slowed to an annual average of 3.8%, which is still faster than the inflation rate in the same time period.²

That's just tuition – not including food, transportation, books, miscellaneous fees and other living expenses. According to Statistics Canada, university students who live at home spent an average of $4,500 per year on ‘non educational' items, while those who lived away from home spent an average of $8,160 on ‘non educational' items ³. For students and parents alike, it can be equally difficult to come up with the necessary education financing without going into debt.

All this means is you need every advantage you can get when saving to help your children pay for a post-secondary education - to avoid burdening them with huge student loans or the extra stress of a part-time job during the school year. And, you need to get started as soon as possible.

One of the most effective ways to create an education fund that grows to offset the future cost of education is through a Registered Education Savings Plan (RESP). Here's why an RESP is such a powerful cash-accumulation vehicle:

Tax deferred growth. You can contribute up to a lifetime maximum of $50,000 per child. Earnings accumulate tax-deferred as long as they are in the plan and, when the child withdraws the money, the earnings are taxed at the child's likely lower tax rate, usually resulting in significant tax savings as compared with having the money invested in your hands.

Government Grants⁴. There are now three main federal government grant programs available to help maximize your RESP savings.

The Basic Canada Education Savings Grant (Basic CESG) tops up RESP contributions - adding 20 percent to the first $2,500 contributed each year, which could add as much as $7,200 in extra investment capital over time. Unused grant room can be carried forward until the year a child turns 17, so you can usually make up for any missed contributions along the way.

Additional Canada Education Savings Grant (Additional CESG) is available on contributions made to an RESP after January 1, 2005. It provides an additional grant of either 10 or 20 per cent on the first $500 contributed to an RESP depending on your family income, offering the potential to reach the $7,200 CESG limit that much sooner than children only eligible to receive Basic CESG.

The Canada Learning Bond (CLB) is available to children born in 2004 or later whose parents or primary caregivers are receiving the National Child Benefit Supplement. The CLB pays $500 into an RESP for the first year you qualify and $100 for every year you continue to qualify, up until the child turns 15 years of age. The CLB can provide up to an additional $2,000 in education savings.

In addition, certain provincial governments offer their own programs. Check with your Investors Group Consultant for information on applicable programs in your province.

Flexibility. If the beneficiary chooses not to pursue a post-secondary education, you have the options of selecting a different beneficiary or transferring the earnings on a tax-deferred basis into a Registered Retirement Savings Plan (RRSP), subject to certain restrictions.

Anyone can establish and contribute to an RESP - parents, grandparents, aunts, uncles and even good friends - but the total contributions can't exceed the RESP limits for each beneficiary.

Mutual funds are often a good choice as an investment to have in an RESP. But be sure your education investments are in accord with your overall financial goals and time horizon and follow an effective 'asset allocation' strategy that meets your diversification and risk/return requirements.

Be sure to select investments that allow you to switch as your financial goals change, especially in the two to three years before you'll begin paying for books and tuition. And, the sooner you start, the more opportunity your children will have – to afford the college or university of their choice, follow the career they want, and obtain the earning power they need. Speak with an Investors Group Consultant about the best RESP investments for you.

¹ Statistics Canada, 2001 Census

² Statistics Canada, The Daily, October 18, 2007

³ Statistics Canada, The Daily September 10, 2003

⁴ The Canada Education Savings Grant and Canada Learning Bond (CLB) are provided by the Government of Canada. CLB eligibility depends on family income levels. Some provinces make education savings grants available to their residents.

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Written and published by Investors Group as a general source of information only. It is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax, legal or investment advice. Readers should seek advice on their specific circumstances from an Investors Group Consultant.

Commissions, fees and expenses may be associated with mutual fund investments. Read the prospectus before investing. Mutual funds are not guaranteed, values change frequently and past performance may not be repeated.