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saving for education

Investing

Should You Save Or Invest To Fund Your Child’s Education?

should I save for my kid's educationVirtually every parent wants their child to get a good start in life and there is an overwhelming amount of evidence to support the fact that in order for that to happen, they need a college education. However, with the amount of college debt within the United States sitting at a whopping $1 trillion and the price of tuition rising 5-7 percent each year, it’s no wonder why a lot of parents are asking themselves if it is better to save or invest in order to fund their child’s college education.

As far as providing you with a concrete answer to that question, the best answer would probably be that it’s smart to do both. However, in order to help you to decide what will work best for you and your family; we’ve provided you with a few saving and investing options to consider.

Set up a 529 Savings Plan. A popular thing that a lot of parents do in order to prepare for their child’s education costs is to set up a 529 Savings Plan. Because it is a form of an investment account, the money that you put into it will grow about seven percent (in interest) each year. This means that if you had put $200 each year into the account once your child turned 5, that amount will have more than doubled just in interest alone by the time they are 18. Plus, this kind of savings plan is totally tax free.

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Money Saving Tips

How To Create A College Savings Plan For Your Kids

We all want to give our children the best opportunities they can get, but that is not always easy in today’s world, nor is it simple. A college education is a necessity for career opportunities in many industries, but the rising cost of education is making it very hard for many students to get their credentials without accruing massive amounts of debt. No one knows where this trend will go in the next few years, which makes it ever more necessary to make sure that you’re prepared. Starting a college fund for your kids is a great way to keep them on track for success, but how can you start saving?

The best way to begin creating a college fund for your kids is to know what kind of savings account options are available to you. A standard savings account with your bank may seem like the easiest choice, but it is not always the most beneficial. If you hold your child’s college fund in a savings account, it will still be counted as part of your total estate. This will make it more difficult for your child to receive financial aid from the government when he or she starts college.

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Investing

You Don’t Have To Be Rich To Open an RESP

An article recently posted on globeinvestor.com suggests that not enough Canadian parents are taking advantage of the Registered Education Savings Plan (RESP) to save for their children’s education.  According to the article, it’s primarily the highly educated folks with higher incomes that are taking advantage of them, and the people with lower incomes who could really benefit a lot from them either don’t know enough about them or think they just don’t have the means to open one.

The great thing about RESPs is that you don’t need to have a lot of money to open one.  So if one of your savings goals is to help your child pay for post secondary education, an RESP is the best way to do it because your child will receive free money from the government in the form of grants and bonds.  In some cases, even if you don’t put any money into the RESP, your child may still receive some money from the government.

Opening one is easy.  Once you have applied for your child’s Social Insurance Number, sit down with an account manager at your financial institution of choice and ask to open an RESP.  When you open one you will automatically be applying for any government grant and bond money that is applicable to your child.  You can even open a family plan if you have more than one child.  The benefit of the family plan is that if one or more of your children decide not to further their education, the child or children who do can use the money invested in the RESP.

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Investing

Start Saving Now For Your Children’s Education

the time to start saving for your children's education is nowDo you hope that your children will one day get a post secondary education?  Are you planning on helping them out with funding at least part of it?  If so, I would highly recommend that you begin saving now.  For Canadians, a Registered Education Savings Plan (RESP) is a good option.

When you contribute to an RESP, the Canadian government will provide grants and bonds that will aid you in helping to save for your children’s education.  Although your contributions to an RESP are not tax deductible, the earnings are tax sheltered until withdrawn and are taxable to your children at a much lower tax bracket.

The earlier you start saving, the better.  To illustrate this, let’s imagine that you want to fund 4 years of post secondary education for your child.  Let’s assume that in 2009 it costs $7000 per year for tuition, and that your child will begin university at age 18. Taking into account inflation, if you begin to save within an RESP when your child is first born, you will only need to tuck away $80 per month for 18 years. That works out to $17280 out of your pocket.

With the same scenario as above, if you begin to save when your child is 5, you will need to tuck away $122 each month for 13 years, which works out to $19032 out of your pocket.  If you start when your child is 10, it will cost $214 per month for 8 years, costing you $20544.  And, finally, if you wait until your child is 15 to begin saving, you would need to come up with $676 monthly for 3 years, which works out to $24336.  So, as you can see, the later you start saving, the more burdensome it will be and the more money will need to come out of your own pocket.

In a previous post I wrote about the importance of indexing your investment contributions to inflation, meaning that it’s a good idea to increase your contributions by at least 3% each year.  The numbers below show the savings you could enjoy if you were to do so.

START AGE                       FIXED                  WITH 3% INCREASE/YR

0                                             $80                           $64

5                                             $122                         $103

10                                           $214                         $193

15                                           $676                         $656

The time to start saving for your children’s education is now.  The sooner you begin, the easier and more manageable it will be to help your children to get a good start at a promising future.  For more information on RESPs, check out this link.