Majority don’t have RESPs

More than three-quarters (76%) of parents with children over 18 years old did not set up an RESP to help cover the costs of their child’s post-secondary education, according to a study by BMO Financial Group.

Read: More students need RESPs

Education costs are escalating steadily. Full-time undergraduate students in Canada paid 3.3% more in tuition fees in 2013 than in 2012, in addition to a 4.2% increase in 2011, according to Statistics Canada. This is much higher than the inflation rate of 1.3% from July 2012 to July 2013. Moreover, according to BMO, the total cost to send a child born in 2013 to a post-secondary institution could escalate to more than $140,000.

One of the key advantages to opening an RESP is the government matching program. The first $2,500 in RESP contributions per year receives a matching 20% Canada Education Savings Grant from the federal government, which is $500 annually.

Read: University students should target specialized programs

The study found:

• More than one-third (37%) of Canadian parents are not aware that the government offers matching grants.
• Two-thirds (65%) of Canadian parents would have set up an RESP for their child had they known about the government grant.
• An overwhelming 93% admit they would set up an RESP for any future children after learning about the grant.

BMO suggests including a variety of investments such as cash, mutual funds, GICs, stocks, bonds and exchange traded funds, in the RESP.

Also, RESP contributions make great gifts for special occasions. If two sets of grandparents each deposit $100 per year to their grandchild’s RESP from the time the baby is born, the RESP could be worth up to $8,000 by the time that child turns 17.

Read: RESP? There’s an app for that

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.