U.S. Markets open in 1 hr 28 mins

BMO Wealth Institute Inaugural Report: Thinking Beyond RESPs to Save for Post-Secondary Education

TORONTO, ONTARIO--(Marketwire - Mar 27, 2013) - With many Canadian high school students beginning to receive acceptance letters to colleges and universities, the BMO Wealth Institute today launched its inaugural report on saving for and funding post-secondary education.

The new BMO Wealth Institute provides insights and strategies around wealth planning and financial decisions. The Institute's team of professionals have deep expertise around all aspects of wealth planning including retirement, estate, tax and insurance.

"We launched the BMO Wealth Institute to provide our clients with expertise and access to a full range of professionals to address the opportunities and challenges Canadians face with their finances, and to help prepare them for a confident financial future," said Caroline Dabu, Vice President and Head, BMO Wealth Planning Group.

Student Tuition and Debt on the Rise: RESPs and Beyond

The BMO Wealth Institute's inaugural report, titled Student Tuition and Debt on the Rise: RESPs and Beyond, examines the cost of post-secondary education, the mistakes parents make when saving for their children's education and the many savings vehicles available in addition to RESPs.

According to the report:

  • A four-year university degree can cost upwards of $60,000, rising to more than $140,000 for a child born this year.
  • Three-in-four parents with children under 18 have not made a detailed estimate of the total cost of putting their child through post-secondary education.

The report also discusses the critical role that RESPs play in saving for post-secondary education. As the report explains, opening an RESP is a smart way to maximize education savings and to role-model sound saving habits for children. In addition, the tax-sheltered investment growth and eligibility for government grants can make a big difference to a child's future. However, the report revealed that:

  • Only half of Canadian parents are using an RESP to save for their child's education, and only 20 per cent are taking full advantage of the available government grant.
  • Seventy per cent of parents recommend saving right from the time of their child's birth, but only half have set up an RESP.

Five Other Savings Options to Consider

While Canadians generally think of RESPs when choosing options for saving for post-secondary education, the report examines several other suitable strategies for parents and grandparents to consider:

Non-Registered Account: Thirty-eight per cent of Canadian parents are unaware that a non-registered account can be earmarked specifically for post-secondary education savings. Flexible and easy to set up, a non-registered account is not subject to any special rules or restrictions concerning contribution amounts or frequency. Parents can maintain control over the timing and use of the funds, even when the child reaches the age of majority.

Tax-Free Savings Account: A TFSA is an effective education savings option. Those with unused maximum TFSA contribution room can redirect some of their savings from a taxable account to a TFSA. Savings grow tax-free, and funds can be withdrawn in the future without incurring any taxes to help finance a child's education.

Trust: One-third of Canadian parents do not realize that they can set up a trust to save for post-secondary education. Whether funded by way of a gift or loan, a trust can be created specifying terms and conditions that ensure that the funds are used for the purpose it was intended - schooling - rather than for the child's personal wants and needs.

Corporate Dividends: Forty-four per cent of parents are unaware how corporate dividends can play a part in saving for post-secondary education. Those who are incorporated professionals, or have an incorporated family business, can explore having their child own shares of the company and later, under the right circumstances, pay out company dividends to fund a child's education - beginning the calendar year in which the child turns 18. Dividends are taxed at the child's tax bracket, making it a tax-effective income-splitting strategy.

Life Insurance: Parents and grandparents can tap into excess cash value in their insurance policy to help pay for college or university. One of the downsides is that the policyholder loses control over the money put into the policy and the coverage offered by the contract.

"It's important to look into all options available to save for your child's education," said Chris Buttigieg, Senior Manager, Wealth Planning Strategy, BMO Financial Group. "You will likely need more money than you anticipate. Consider one option, or a combination of options, that suit your situation to make the most of your money. Proper planning will make it easier to save and also set your children on a path to future financial success."

More generally, Mr. Buttigieg noted that BMO Financial Group is committed to helping Canadian children develop their financial literacy. BMO is supporting Talk With Our Kids About Money Day, which will be taking place on April 17, 2013 at schools throughout Toronto and Montreal. The program, designed to be taught both in school and at home, was developed by the Canadian Foundation for Economic Education (CFEE); it offers families, students and teachers a simple way to help young Canadians learn more about money and personal finances. For more information on Talk With Our Kids About Money Day please visit: www.talkwithourkidsaboutmoney.com.

To view a copy of the full report, please visit: www.bmo.com/wealthinstitute.

Get the latest BMO press releases via Twitter by following @BMOmedia.

Survey results cited in this release are from online interviews with a random sample of 1,400 Canadians, including a sub-sample of 520 parents with children under 18, conducted between February 7th and February 11th, 2013. A probability sample of this size would be accurate to +/- 4.3%, 19 times out of 20.