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Earning to learn, learning to earn

The Van Gorder family, mom Tami, daughter Megan, dad Steve and son Owen.
The Cox family, mom Tami, daughter Megan, dad Steve and son Owen. - Contributed

An RESP takes the pressure off when children are ready for post-secondary education

It’s Friday night at the BMO Centre in the heart of Bedford and the Bandits are taking on the Rock in this lacrosse matchup.

In her blue, red and white Bandits uniform, 17-year-old Megan Cox is confident.

“We beat them last time, so I think we can do it again,” she says. 

A top student set to enter her final year at Auburn Drive High School in Dartmouth, Megan has another reason to feel confident.

With another year to make up her mind about which university to attend and what program to take, Megan knows there’s another team on side, ready to back her up.

Her grandfather and grandmother, Bill and Esther VanGorder, have been quietly squirreling away money in a registered education savings plan (RESP) for both their grandchildren, Megan and her 14-year-old brother, Owen, for about 14 years.

And there's more help.

Megan’s mother and father, Tami VanGorder Cox and Stephen Cox, have been doing the same, investing money into two RESPs, one for each child. Those two RESPs are expected to provide Megan and Owen with $20,000 for a university education by the time they need the money for tuition. 

That means Megan will have roughly $25,000 available to her to pay off her university education. It's a level of financial security that allows her to plan for university without having to worry about money.

“I’m very grateful for everything they’ve done for me because it’ll make it easier for me,” she said. “I won’t have to work as much, and I’ll be able to concentrate on my studies more.”

Opening an RESP was a no-brainer for the VanGorders. 

Nordic Walking Nova Scotia entrepreneur Bill VanGorder was still working as the top exec for the Lung Association of Nova Scotia in 2001 and employing young university grads when he decided to help out with an RESP for the grandchildren.

“These young people were coming out of the university with tens of thousands of dollars in debt and earning probably in the mid-$20,000s and I was wondering how they would ever pay that off,” he said.

As an investment vehicle to help cover part of the cost of their grandchildren’s education, RESPs appealed to Bill and Esther, particularly because Ottawa chips in. Through its Canada Education Savings Grant, the federal government’s Employment and Social Development Canada department contributes up to $7,200 to an RESP.

Here’s how that works. 

No matter what a family’s income is, Ottawa will top up an annual contribution of up to $2,500 by matching it at 20 cents on the dollar to a maximum of $500 per year. If that full contribution from the federal government isn’t used in one year, it can be carried forward to a maximum of $1,000 the following year. 

In the first year of the RESP, the federal government also gives an added bonus to many families, topping up its contributions on the first $500 put into the savings plan.

But to get those breaks from Ottawa, families need to start contributing to RESPs before the end of the calendar year in which their child turned 15 years of age.

The Canadian government’s contributions to RESPs – and the gradual effect of compound interest on a financial investment – have been enough to add thousands of dollars to the VanGorders’ savings for their grandchildren’s education.

"The 20 per cent is appealing because that's an immediate addition to the funds," said Bill VanGorder. "So even if there's no growth in the fund, the RESP still grows because of the money the government puts in."

In the past 17 years, the couple’s and the federal government’s contributions to Megan and Owen’s RESP have totaled $5,160. That investment’s value is now $8,346.

The children’s parents invested roughly $10,000 per child, including Ottawa’s contribution, and that’s roughly doubled over the years.

“It’s a good investment,” said Tami. “I don’t want them to have any kind of debt coming out of school … It’s nice to invest when they’re young rather than trying to scramble later on.”

She and her husband both graduated from Saint Mary’s University with bachelor-of-commerce degrees. Now, they’re hoping Megan will be able to complete her university education close to home – maybe at their alma mater – and avoid expensive living costs that come with studying away. 

“We didn’t have any debt coming out of university and so we didn’t want our kids to have any either,” said Tami.

As a teenager, Tami’s father instilled sound money management principles in her by asking her to read David Chilton’s The Wealthy Barber, a highly successful financial planning book.

Now, she and her husband are trying to pass on those lessons to their own children.

And it seems to be working.

Even though she stands to benefit from about $25,000 in RESPs to pay for her education, Megan isn’t just sitting around waiting for the money to roll in. She works at the local Superstore as a cashier, 10 hours a week during the school year and up to 25 hours per week during the summer. She's saving the bulk of her earnings, intent on having enough to cover the cost of education she'll need to become a physiotherapist.

“I only take out $40 of every paycheque and save the rest,” she said. “I’ve got about $2,200 in the bank right now for school but there’s a lot more that I’m going to need.”


Size of savings varies family to family

Throughout Canada, most students headed for university or a trade school do not enjoy the level of financial support Megan and Owen Cox do. The situation is worse in Atlantic Canada than in the rest of the country.

Based on 2016 data from the Survey of Financial Security, Statistics Canada analysts estimate only 16.6 per cent of Canadian households have RESPs. The average amount in those investment vehicles is $18,500 across the country. In Atlantic Canada, only 14.1 per cent of households have an RESP and the average size of those savings for university and trade school education is $14,500.

But things aren’t quite as gloomy as those figures might at first suggest. Those households include single people with no children and seniors whose kids have grown up and moved out.

When those households are factored out, the situation looks quite a bit better for Canadian students.

Almost half of all Canadian families who actually have a child under the age of 18 living at home, or about 46.7 per cent of these families, have an RESP.

Still, they don’t all manage to save as much money for their children’s education.

The size of those savings varies a lot depending on the parents’ income and educational levels. The richest 20 per cent of Canadians put aside more than seven times as much money in RESPs for their children as the poorest 20 per cent of the population.

It all makes a huge difference in the lives of young adults, particularly young men, according to a Statistics Canada report, Investments in Registered Education Savings Plans and Post-secondary Attendance.

When students can count on an RESP to cover some or all of their tuition, they are much more likely to pursue their education after high school. Nineteen-year-old men who could draw from an RESP were 7.8 per cent more likely to get post-secondary education and 19-year-old women were 4.3 per cent more likely to do so, than their classmates who did not have those financial resources, according to the report released last year.

“Youth who had access to an RESP account were more likely to pursue post-secondary education later on, particularly by age 19, although a strong association generally persisted up to age 27,” wrote analyst Marc Frenette in that report. “This was generally the case across the income distribution and for both sexes. However, the association was about twice as strong for young men as for young women.”

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