Making cash gifts “RESP”onsible

Treated with a little RESP-ect, cash gifts from grandparents can do wonders for grandkids’ educational savings.

Grandparents give, on average, $100 or less annually to each of their grandkids, according to a study from BMO Financial Group.

Putting this money towards an RESP is increasingly a good idea, as the costs of post-secondary education rise, said Mark Stewart, director, product development and management, BMO Investments Inc.

“Contributing even small amounts to an RESP can go a long way in saving for a post-secondary education,” said Stewart. “While most grandkids receive a few small cash gifts a year, these amounts, if invested in an RESP, will grow over time through compounding interest and the funds provided by the federal government’s Canada Education Savings Grant.”

Currently, a four-year degree can cost as much as $60,000. Given current trends, some estimates see a child born in 2011 paying as much as $140,000 for their degree when they enter college or university, noted the study.

An annual gift of just $100 from each set of grandparents can provide a child with up to $11,000 for his/her post-secondary education. This takes into consideration the federal government’s Canada Education Savings Grant and investment growth.

A huge lack of awareness, however, has meant few Canadians take advantage of a savings vehicle which helps sock away thousands of dollars toward post-secondary education.

While uptake for the RESP is low, it’s even lower for the Canada Learning Bond for low-income families. The saving opportunity, with only 16.3% takers as of September 2010, might well be Canada’s best kept secret. The plan gives eligible families an initial $500 contribution towards their child’s RESP—allowing them to open an RESP account without having to make their own investment—and deposits a further $100 annually to a maximum of $2,000.