Education is high on my list of priority to provide for my child, the question is how am I going to start planning or how much should I be planning for?

Some parents may suggest that their child pays for their own education, which will teach them more about money. I think there are better ways to teach your children about money than gambling with their education. I speak from my own personal experience.

Like many I had to pay for my own post secondary education.  While the majority of my friends are still paying for their student loans, I wasn’t prepared to do this for the simple reason, I hate to have debt especially for the following years. In fact it was a challenge to mange a job to pay for University and college. I struggled with achieving the grades I need to get into Dental school hence I compromised on my education goals.

Inflation in Canada is running 2.7% but the cost of education is running slightly higher.

Post secondary education, like ones from Cardinal Stritch University, isn’t getting any cheaper and by the time your child is old enough to attend University it could end up costing you an extra 25% than today’s tuition.

According to Statistics Canada the average cost of undergraduate studies cost $5,366 in annual tuition fees in 2011/12 compared to $5,146 the previous year in 2010/09. That is an increase of 4.3% over a year.

Thankfully the government of Canada now offers Canada Education Savings Grant (CESG for RESP) this will help ease the burden. (Somewhat) Since grants are free money I’m grabbing as much of the grant as possible.

What is the Canada Education Savings Grant?

A CESG is a government incentive for parents, family and friends to save for a child’s post secondary education. It allows you to invest in an RESP with the Basic CESG amount that equals to 20% of your yearly contributions, up to an annual maximum of $500 per child, with a lifetime maximum of $7,200.

Like all government grants there are guidelines on the eligibility amounts a child will receive based on the family income.

How does Canada Education Savings Grant
work?

  • Your child is eligible for lifetime maximum CESG of $7,200.
  • Your child’s eligibility grant is dependent on your family income.
  • For families with an income of $40,970 or less your child will receive 40% on the first $500 saved and 20% on the next $2000 saved. With a yearly maximum CESG of $600.
  • For families with an income between $40,970 and $81,941 your child will receive 30% on the first $500 save and 20% on the next $2000 saved. With a yearly maximum CESG of $550.
  • For families with an income of $81,941 or greater your child will receive 20% on the first $500 saved and 20% on the next $2000 saved. With a yearly maximum CESG of $500.

Everything else you should know about Canada Education Savings Grant and RESPs:

  • RESP savings must begin before the child turns 15 years old on that calendar year to be eligible for the CESG.
  • Should your child decide not to pursue post-secondary education the CESG must returned to the government.
  • Your child must have a Social Insurance Number (SIN) and must be a Canadian resident.
  • The RESP is tax-free savings. Which also means you can invest the money and not pay tax on interest that is earned.
  • There are no tax detections on your contributions unlike your RRSPs.
  • There is no annual limit to your contributions however there is a lifetime limit of $50,000 up the age of 21.
  • Should your child not use the RESP you may transfer the money into your RRSP up to $50,000 less the CESG.
  • You can catch up on miss contributions of $400 up to 2006. After 2007 your eligibility is $500 of the CESG.

To apply for the Canada Education Savings Grant:

  1. The child must have a Social Insurance Number (SIN). Download the SIN application form here.
  2. Open a Registered Education Savings Plan (RESP) with an RESP provider. (Speak to your financial planner about this.)
  3. To download the forms and further information visit Canada Revenue.