Most of the Canadian parents are expected to pay for their child education, especially for the post-secondary education but the cost of education keeps on rising. The college degree which is four years would cost as much as $70,000. The cost of the education will go up $120,000 for the child born in 2015. So we must do long term planning in order to secure the future of our child`s education. Let’s see the common mistakes of RESP plan :
- Set and forget the plan
The parents start the RESP plan and set it at work. But they forget to re-pay it and to re-evaluate the plan on regular basis. The parents have to add extra money such every month if they have not set the maximum allowable limit which is $208 per month. You have to keep achieving your goal on a long term basis.
- Shorter returns
Every parent believes that by putting just $50 to $100 per month in RESP they can save big amount which is not true. If you add $100 per month in RESP then total after 18 years would be $21,600 which won’t help to complete a 2 year full time course in next 18 years.
- Loss of free money
You would miss the benefit offered by the federal government on the contribution made if you add just $50 in the RESP account of your child. Parents can receive up to $500 a year from the government grants for contributing $2,500 annually. Government offers 20% of the contribution made every year for the children to a lifetime limit of $7,200 as free money.
- Less contribution
According to the study relating to RESP, it is found that most of the young Canadian families have average contribution which is less than $1,500 per children to the RESP. It shows the fact that $200 of Canadian educational grant remained untouched without getting utilized per children that affects the RESP initiative.
- RESP is an Investment plan
The RESP should be treated as an investment plan and not just educational expense. The RESP investment is called as growth-oriented investment. It is mainly based of growth of a child from younger age - having the duration of 15 to 18 years- before the money should be used. Parents have to consider RESP as the investment plan which brings more stability and satisfaction in the life of the children.
General rule for any savings is to start early to get maximum benefits. RESP is based on ‘better half a loaf than none’. The plan of RESP can be utilized in many different ways which are effective and highly useful. The best time to invest in RESP is when you can afford it but you will get grants and maximum benefits if you start when the child is between 0 and 1.