TORONTO, ONTARIO--(Marketwired - July 23, 2013) - HRH Prince of Cambridge, third in line to the throne, will probably not need to worry about how he is going to pay for post-secondary education. However, for many Canadian parents, the costs associated with sending their prince or princess to university or college can cause much stress.
In fact, according to a BMO Financial Group study, more than two-thirds of Canadian parents are concerned about how they will fund their child's college or university education, including tuition, room and board, books and spending money. For a child born in 2013, costs could reach up to $140,000(i).
As the Commonwealth celebrates the birth of the royal baby, BMO reminds Canadians that it does not have to cost you a "king's ransom" to fund a child's education. Opening a Registered Education Savings Plan (RESP) when a baby is born can yield a sizeable sum by the time the child heads off to college or university.
"With a four-year university degree costing upwards of $60,000 - and rising rapidly - parents who start saving for it early on can give their child a good head start," said Robert Armstrong, Vice President, Managed Solutions and Registered Plans Strategy, BMO Asset Management Inc. "Small amounts add up, with government grants and compounded earnings adding significantly to total savings."
BMO offers the following tips for Canadians parents and grandparents interested in opening an RESP:
Start early: Apply for your child's Social Insurance Number as soon as the baby is born and use it to open an RESP.
Take advantage of government grants: Government grants and compounded return can add considerably to an RESP's total savings. For example, the first $2,500 in RESP contributions per year receives a matching 20 per cent Canada Education Savings Grant from the federal government, which can be as much as $500 annually.
Mix it up: Cash and mutual funds are not the only ways to build up an RESP. Include a variety of investments such as guaranteed investment certificates (GICs), stocks, bonds and Exchange Traded Funds. BMO LifeStage Class Mutual Funds allow investors to choose different time horizons, from five to 18 years, when investing. The funds annually shift their asset mix from an emphasis on equity funds to an emphasis on fixed income and cash equivalent funds as they approach their end dates. Invested in an RESP, these types of funds provide growth in the early stages and become progressively more conservative as the child approaches post-secondary age.
Inspire alternative gift-giving: RESP contributions make great gifts for special occasions, so let friends and relatives (including grandparents) know that you are receptive to receiving them for your child's future education. 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(ii).
Speak with a financial professional: A financial professional can help you develop a financial plan that incorporates all of your short- and long-term goals, including saving for a child's education. Together, you can determine the RESP contribution methods and strategies that are right for you.
To learn more about saving and RESPs, please visit: www.bmo.com/resp .
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(i)Education costs include tuition and a single residence room with meals and books, from the BMO Education Savings Calculator
(ii)Depending on the family income, province of residence and average annual rate of return
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Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
